How to determine the best comps?

Question

My business partner and I are looking to invest in our first flip. We are currently evaluating a few properties. I am curious to know how others select the best comps. for their investment. Of course, as investors, we try to find those at a higher price point however, while assessing your comps what are some other factors you take into consideration?

Charlie MacPherson · Answer

I suggest that you DON'T look at comps with "higher price points".  That approach reeks of "eraser math" - paying more attention to favorable data and less to unfavorable.

First and foremost, comps need to be realistic.

I look for properties within 1/4 mile and sold within the last 6 months.  Frequently, there's just not enough data available, so I slowly increase the search radius and time frame.

I spreadsheet my comps, with columns for beds, baths, square feet, lot size, basement type, septic (public / private), garage, days on market, REO or Short sale, condition, sale price, $/sq ft.

In general, I try to get the same style home, but at least comp 2 story homes with other 2 story homes, ranches with other single story homes, etc.

I also throw out any comps that are either inexplicably low or high prices.

I include 3 sections in my comps - the subject property, sold properties and thos currently on the market (your competition).

I've attached on that I just did on an exceptionally hard property.  It started as a Campanelli Ranch, but had massive additions along the way.  You'll see the notes I made on it.  Note that I excluded this part from the attached file as we were already under contract.

I was representing the seller on this deal.  We had it under contract at $374K, but the VA appraisal initially came back at $315K.  This was my second set of comps, which caused the appraiser to raise the value by $15K to $330K.

I still think he was very wrong, but it did save the deal!

Dominique Arnold · Answer

@Aaron Lovett

Thank you for the advice!

Aaron Lovett · Answer

@Charlie MacPherson is right on the money.  No matter which properties you call comps, if they don't really compare, then they don't matter.  Trying to influence ARV or other values on paper by choosing the properties at a higher price point as comps won't do anything to affect the realities of what it is worth, what it will sell or rent for, etc.

So, do your best to find properties that are truly comparable in as many ways as possible.  Stick to the same property type, size, neighborhood, etc.  Don't look too far back in time, 6 months will do in many cases.  Compare apples to apples and let the numbers speak for themselves.

Dominique Arnold · Answer

@Charlie MacPherson

Thank you, this is very helpful!