How to Determine a Property’s Value Using Real Estate Comps
Real estate comps—the industry term for “comparable properties”—help banks and other companies determine home values. When determining real estate comps, there are certain guidelines that are expected to be met. First, you’ll need to identify three sold and three active comparables.
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These comps can be a great tool for a beginning or seasoned investor to determine property value. The trick in coming up with an accurate value is by making proper price adjustments—for example, knowing how much value a swimming pool adds or detracts. Every house is different in some way, and making accurate adjustments is how to calculate what those differences are worth monetarily.
Before diving into real estate investing, make sure you understand how to compare markets and properties. Whether you’re trying to decide between investing in Boise or Sacramento—or you’re just comparing two similar homes—this guide will walk you through all the numbers you need to know. From calculating cash-on-cash return to running a comparative market analysis, the experts at BiggerPockets demonstrate the steps you need to follow and the statistics you must know with The Beginner’s Guide to Real Estate Market Analysis.
How to Choose Real Estate Comps
Here are the typical guidelines that most banks and appraisal companies require real estate agents to follow when completing real estate comps. While you can, informally, relax these guidelines—you're not a licensed appraiser, after all!—consider staying strict. That ensures the accuracy of your pricing.
- Distance: Within one mile for any urban or suburban neighborhood.
- Age: Built within 10 years of your property—unless the home is more than 50 years old (feel free to widen the age brackets a bit then).
- Size/square footage: Only calculate above-ground square footage, which must be within 20 percent of the subject. Basement square footage is calculated separately.
- Property type: Single-family detached homes must be compared to single-family detached homes, duplexes to duplexes, town houses to town houses, etc.
- Bedroom/bathroom: Only count above-grade bedrooms and bathrooms—and the sample property can only be different by one bedroom or bathroom
- Style: Try to use the same style of home: a two-story to a two-story, split level to split level, ranch to ranch, etc.
- Sale date: Proper comps should have sold in the last six months, although many banks prefer three months.
How to Find Comps
Once you have a subject property, you should set out to find comps. The easiest method is to use the MLS, but unfortunately, you have to be a real estate agent to gain access to it (or have an agent put together an analysis for you).
Luckily there are several other websites you can use—although it’s harder to specify your precise search terms. You’ll need to do a little more legwork. You can find comps without having a real estate license on websites such as:
Just make sure not to rely on the Zestimate or Redfin estimate; they are simply not accurate. Instead, find actual comps and put together your own estimate.
How to Adjust Real Estate Comp Values
Adjust the price of any comparable properties if they are superior or inferior to the property you’re purchasing. If a comp sold for $180,000, then you add or subtract adjustments to account for positive or negative features of your property. That helps you determine an exact price.
Calculating adjustments is a judgment call based on an individual market. There is no “across-the-board” figure for square footage, garages, or lot size. It is up to you to determine what the actual adjustment figures are—which is why it’s so important to familiarize yourself with your market.
It may cost $100 per square foot to build a home, but that doesn’t mean you add $100 for every extra square foot. The price of a new build or addition is determined based on the entire house. Comps factor in individual variables, like square footage, bedrooms, and baths—and market fluctuations.
Usually, you will see appraisal adjustments of $20 to $40 per square foot for above-grade square footage and less for basements. The higher range is usually for a more expensive house with higher build quality.
Based on the real estate comps, the subject property is worth $182,500.
A Quick Overview of Rental Comps
Rental comps are just as important as sales comps when purchasing a rental property. Knowing how to find comps and accurately assess them will directly impact whether you’re able to achieve profitable rental deals.
You'll be looking at many of the same features and factors for rentals as sales comps. Look at living area square footage, age, location, and bed/bathroom count. A wider variety of factors impact rentals, however, such as nearby gyms, pet groomers, and restaurants.
Finding Rental Comps
To find rental comps, you can use Trulia and Zillow, just like for sale comps. Rentometer.com is also a good option. It has a free tool for instantly getting a rough estimate of area rents and showing you where prices fall within the whole market.
But it’s also up to you to do your own research. There can be a huge difference between asking rents and actual rents. One house might be asking $1,500 a month. An identical unit next door could have just leased for $800. It’s hard to know online because this data isn’t provided like actual recorded sales comps.
If you see a rental that has been on the market 90 days, then that is a good indication the market is not willing to pay that. The market—aka renters—will always let you know whether a property is priced too high.
Pay attention to the number of rentals on the market. If there are too many, landlords are going to have to fight hard for any tenants and may have to come down a lot by making concessions.
If you can learn to accurately apply adjustments to comparable sale or rental properties, it greatly improves your—and ensure your continued real estate success.
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