How do I run comps for my house rehabs?

13 Replies

I'm trying to run comps for house rehab projects. I was instructed to run comps like this...

Look for 5 comparable properties. Start my search within 1/4 mile and 3 months, then go out to 1/2 mile and 6 months, then to 1 mile and 12 months. Once I find 5, get the sale price per square foot of each one.  Take out the high and low number, then get the average of the remaining 3.

The problems that I have are that sometimes, even if something is within 1/4 mile, the comparable property could be in a completely different neighborhood with much better or worse homes. Or it could be off by 1 or 2 bedrooms or bathrooms. How do I adjust for this? Also, when I rehab a property, it will always have new granite countertops, new floors, probably new cabinets, etc. How do I know the condition of the comparable properties, and how do I adjust for this?

You want to find comparable properties that are similar in size and have the same type of finishes that your property will have. 

The comps should be what your final product will look like. I don't use PSF. I just find homes that have the same sq footage and then take an average of the sale price. 

@Patrick Philip

You're going to need to conduct a Comparative Market Analysis. Without getting into too much detail, you should take a look at this video for a visual break down of how to do one. https://youtu.be/52nHWZrp3-k

If you're more of a reader than a watcher, try this site out. https://www.thebalance.com/elements-of-cma-2867224

You will need to look for like for like properties with similar features and amenities that have recently sold within the last 3-12 months depending on your market. You seem to have a good baseline of knowledge on the topic, so it shouldn't be too difficult for you to practice at it and get better. As far as knowing the condition of the comps, recently sold properties will/should have photos so all you need to do is go to Zillow/Trulia/Redfin to see what kind of finishes went into the home and what amenities the home offers. Best of luck.

Patrick, I like the square foot method as well because you can compare the other comps you found and see what they sold for psf. Of course the closer to your property the better and there is always other factors. The sold listings are pretty accurate if they are sold withing the last 3 months, many times the time of year determines the sale price as well. I prefer to do my own CMA because there are agents out there that inflate the prices to get the listing. Best of luck.

@Patrick Philip It's always good to run comps, but also ask an agent that you respect to run some for you also. Always good to get a 2nd set of eyes with professional parameters. 

I run comps within 1 mile and 6 months and I can usually come up with a good number, but I always supplement it with an agent.

Onwards!

sjw

@Patrick Philip Distance is a poor way to choose comps as boundaries of like properties are often street by street, so the problems that you mention that sometimes they are in a different neighborhood are very important to take into account.  At a minimum use neighborhood boundaries, but you might have to get even more specific.  For example, there is a street in my farm area where one side of it the values are $100-$200K lower than the other because of school district.  Neighborhood boundaries include train tracks, major roads, parks, natural boundaries like waterways, etc.

Originally posted by @Kuba F. :

@Patrick Philip Distance is a poor way to choose comps as boundaries of like properties are often street by street, so the problems that you mention that sometimes they are in a different neighborhood are very important to take into account.  At a minimum use neighborhood boundaries, but you might have to get even more specific.  For example, there is a street in my farm area where one side of it the values are $100-$200K lower than the other because of school district.  Neighborhood boundaries include train tracks, major roads, parks, natural boundaries like waterways, etc.

 I can't possibly get to know every place in the world in such detail. I buy houses from wholesalers in an area spanning 9 counties.

Originally posted by @Shawn Ward :

@Patrick Philip It's always good to run comps, but also ask an agent that you respect to run some for you also. Always good to get a 2nd set of eyes with professional parameters. 

I run comps within 1 mile and 6 months and I can usually come up with a good number, but I always supplement it with an agent.

Onwards!

sjw

 So I should just pay them to run the comp? Because I want to list them myself. How much should I pay them?

gla=gross living area sf, so 3 or 4 br difference is not important.  The larger variance needs to be adjusted. In our area I use $125 sf replacement cost, in your area may be $50 will do.  Also lot size and age or condition.

Sold 1 is 1200 sf has 2 bath, subject is 1100 sf 3 bath.   (1200-1100)x $50/sf=-$5000 and bath is +$4000 or net -$1000

on sold 1 etc...

The condition of the sold can be estimated by looking at the photos and descriptions. I prefer to budget my rehab cost separately.

Assuming the comp price is $350K the asking price is $300K, I know there can be $50K equity and I factor my rehab cost and closing cost to est what is there left for me after sale. 

Redfin commented one home I sold look like a jewel except for the affordable blinds. Yes, I can put on better quality curtains. Control the cost is the key to all renovations. Often you have to do part of renovation to save $. Often there is overrun on cost that there is nothing for seller. 

@Patrick Philip do not pay them, but if it's a good agent, let them know that you'll allow them to list it when it's rehabbed.

Originally posted by @Shawn Ward :

@Patrick Philip do not pay them, but if it's a good agent, let them know that you'll allow them to list it when it's rehabbed.

 That would defeat the point of trying to do the agent work myself if I'm just gonna end up giving them commissions anyway.

I run my comps like an appraisal. Find close, recent sales, same style, similar beds/baths and adjust the properties up and down based on differences. I use 3-5 comps and come up with a decent list price. It should also be good to have when an appraisal comes.

Originally posted by @Brian Pulaski :

I run my comps like an appraisal. Find close, recent sales, same style, similar beds/baths and adjust the properties up and down based on differences. I use 3-5 comps and come up with a decent list price. It should also be good to have when an appraisal comes.

 How do you adjust up and down?

Every appraisal I have seen has used $30/SF adjustment for above grade living area. If my house is 1200 SF and the comp is 1300, I would reduce my house value by $3000. I use the numbers I use because they are exactly what each appraisal I have seen has used. 

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