If you are a real estate investor or aspiring investor, it is imperative that you understand how to “run comps”.
If you are not familiar with the term “comps”, it is short for Comparables. Comparables are homes that have sold that are similar to the one you are looking to buy or sell.
Running comps is truly an art not an exact science. You could ask 3 veteran investors to come up with a value on a property and you may get back 3 different values.
Coming up with an as is or an after repaired value of a property is subjective but there are certain variables that must be looked at when comping.
Let’s explore what these variables are.
In order to get an idea of what a property is currently worth you must take a look at what similar homes have sold for.
The most weight should be given to homes that have sold within the last 90 days.
You may need to go out further if you do not see many similar solds. In this case it is ok to go out 6 months.
Pendings & Contingents
It is important to look at any properties that may be contingent or pending. These ones can give you insight on where the market is headed.
Although you can’t tell by the list price, what it is going to sell for, you can usually get a rough idea.
Properties that are pending or contingent are in the process of closing.
The least weight to your decision of value should be given to active homes. Reason being is that where the house is originally listed at and what it finally sells for, could be a big difference.
Actives can also give you an idea of where the market is heading as well as what your competition may be if you are looking to fix and flip the home.
When running comps you want to find homes that have sold within a quarter mile if possible. If you search and there are not many results, increase the radius to half a mile.
In more rural areas you may need to stretch this out further to a mile +.
Neighborhoods can change drastically even within only a quarter mile or on the opposite side of a busy street or freeway.
One area could be a newer development and the other could be full of homes that are 20-40+years old.
It is very important to compare the neighborhoods of the homes you are comping to make sure they really are similar.
Bedrooms & Bathrooms
The amount of bedrooms that the comparables have should be equal to or very close to the subject property. This can vary when comping very large properties.
For average sized homes of 1,000-2,000sf, try to stay within 1 bedroom and 1 bathroom.
If you are looking to get a value of a 3 bedroom, 2 bath house you can look at 2 & 4 bedroom homes as well as homes with 1 or 3 baths but the most weight should be given to exact matches.
Look for those exact matches first then use the other comps to help support your value.
When comparing the square footage on average sized homes stay within 150-200sf of the subject property.
This would need to be adjusted if you were looking at a much larger property of 4,000-6,000+. In this case you may need to expand the square foot range to 300-1,000sf+.
The most weight on value will be given to the comps closest in square feet.
The size of the lot can play a big role when comping properties. You may have an exact match on the amount of bedrooms, bathrooms and square feet of living space, but one may have a lot size of 8,000sf and the other may be 1 acre. In this case you would need to adjust for the difference in value.
Similar Structure or Style
Take a look at all pictures of the comparables to make sure that you are comparing similar types of homes. You wouldn’t want to compare a single story mid century modern to a 2 story craftsman.
If you can’t tell from the pictures you can go to Googlemaps.com and enter the address of the comp. From there you can choose “Satellite View” and zoom in or even do a street view of the home.
Garages are often over looked when comping by many investors but they are important when trying to come up with a value.
Make note whether it has a garage or not. If it does have a garage, how many cars does it hold. In some neighborhoods a 2 car may be much more desirable than a 1 car garage therefore making it worth more.
When looking at the years the comps were built in, pay the closest attention to the ones built within 10 years of the subject property.
Sometimes you may need to expand this a bit if you are not getting many results.
Look for anything of great value that one home may have over the others.
Examples of this are pools, granny flats, studios, workshops, solar, great views, ponds, lakes, streams, etc.
On the opposite end of extras are what I call red flags. When homes are near red flags they tend to be less desirable.
Examples of red flags are homes that are right next to busy streets, flight paths, commercial buildings, industrial buildings, cemeteries, sewage plants, dumps, freeways, schools, etc.
If the subject property is right next to a red flag and the comps are not, you would need to adjust the value downward.
The condition of the subject property and the comps needs to be paid close attention to. If the subject property is a complete dump but all of the comps are completely remodeled you would need to adjust the value accordingly.
It is a good idea to look at the fixer uppers as well as the remodeled/rehabbed homes. This will give you a good idea of the value of the home as it sits and also what it may be worth once fixed up.
As you can see, there are many variables to look over and compare when running comps.
The art of running comps is developed and fine-tuned over time.
By using the general rule of thumbs above you will have a good foundation to build upon. Now it is a matter of practice.
You may want to use the variables listed above as a checklist when you are just learning so that you do not over look something important.
I hope that this post was of great value to you. If so, please share with others that may benefit as well.
Here’s to your success!