comps

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comps

Tyler S.
Real Estate Investor · Midwest City, OK · Member since 2011 · 97 posts · 2 votes

When I am researching comps for a particular property i know on the sq footage it can be about 25% difference but can there ever be a slight difference on bedroom and baths. For example if a property had two baths, could I compare to a property that had 1.75 baths. And then once I got all my comps is there a formula for calculating.

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Stinson Bland
Wholesaler · Dallas, TX · Member since 2011 · 294 posts · 152 votes
15y

You may want to check out investway.com. The website pulls most of the MLS info needed: address, size, layout, year built, DOM, photos, description, price, price per sq ft, distance to subject property, date sold and listed, and I'm sure I'm forgetting some info.

I am not affiliated with the website but I do use their service.

I also use my realtor to pull comps and CMA reports to double check my work on tougher ARV's.

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  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    15y

    Yes, you can compare houses with different sizes and designs, though you want them to be as close as possible.

    Here is how appraisers do it:

    1. Find the houses that are most similar to the subject property, located close to it (with .5 miles is best) and sold in the recent past (within 3 months is best). Sometimes appraisers have to go out a mile or two or up to 6-12 months back, but they prefer not to.

    2. Adjust the value of the comps based on their similarity to the subject property. For example, if a comp is pretty much exactly the same as the subject property, but has a 3-car garage instead of a 2-car garage (i.e., the comp is better), then you would deduct the value of that larger garage from the sale price of the comp to get an "adjusted value" that made it essentially equivalent to the subject property. In this case, the third-car garage might make the comp worth $1500 more, so you would subtract $1500 from the sale price of the comp to make them "even."

    In your example above, the subject property had 2 bath and the comp had 1.75 baths. You'd want to set a value of that extra 1/4 bath and *add* it to the comp sale price to even out the two houses. For example, if that extra 1/4 bath were worth $500, you'd add $500 to the sale price of the comp to get that house's "adjusted value." So, if the comp with 1.75 baths sold for $80,000, the adjusted value might be $80,500.

    If there are lots of differences, you do lots of adjustments.

    3. Once you have the adjusted values of all your comps, you can either average them or weight them based on their similarity and then average them with assigned weights (appraisers generally just average the best three to six comps).

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  • Tyler S.
    OP
    Real Estate Investor · Midwest City, OK · Member since 2011 · 97 posts · 2 votes
    15y

    J Scott why do the comp experts adjust, bringing properies in equal with each other. if i had to subtract a comp by 500 dollars to bring it to equal value of subject property then does that make the value of the subject property go up or down?

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  • Tyler S.
    OP
    Real Estate Investor · Midwest City, OK · Member since 2011 · 97 posts · 2 votes
    15y

    Also what if there are only like two or three comps available?

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  • Jason D.
    Lender · Riverside, CA · Member since 2011 · 17 posts · 2 votes
    15y

    You're adjusting the subject property to the comparable. If a comparable sold for 500k and has a three car garage; the subject is the exact same house with a two car, you'd adjust the subject down because the two car is an atribute which makes the subject inferior to the comparable.

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  • Curt DavisBusiness Member
    Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
    15y

    My experience in this business tell me no matter how well you think you can estimate comps you can never do them as well as the actual appraiser. What you should do is form a relationship with a local appraiser who is experienced with investments and work with them to give you estimated values. Might cost you a small fee. What we do is have actual pre appraisals done to homes we feel need them so we have a stronger position when selling the home. Good luck

    Curt Davis - KAIZEN Realty538 Reviews
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  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    15y

    Tyler,
    You adjust the value of the comp up or down based on whether it has more or less features. This is how an appraiser does it, but appraisers have much more experience than you or me.

    To be more specific, a "comp" house has four bedrooms and you are comparing it to a 3 bedroom house. If you know on average people pay $25K more for a 4bed over a 3 bed, then subtract $25K from the sold price of the 4 bed to give you the comp value. But if you knew that an extra bedroom adds $25K to the value, you wouldn't be here asking the question.

    There is something called the "100 house rule" You don't really know your market until you have visited 100 houses. Go to auctions and see what investors are paying. Go to open houses or look at listed properties nearby. When you look at enough houses you get a feel for what properties are worth.

    I also look at how much other properties are listed for. Yes I know they are not "Comps", but that is your competition. If properties listed, are cheaper or nicer than the comps, the comps don't matter much.

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  • Tyler S.
    OP
    Real Estate Investor · Midwest City, OK · Member since 2011 · 97 posts · 2 votes
    15y

    Thank you all for sharing your info with me. I am starting out as a wholesaler and need good knowlege of comps and repairs and i am trying very hard.lol I think I am going to get a real estate license so I can have access to the MLS. Does anyone know a good online course for oklahoma?

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  • Jason D.
    Lender · Riverside, CA · Member since 2011 · 17 posts · 2 votes
    15y

    Not sure if they cover oklahoma but I'd try alliedschools.com

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  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    15y

    There are other options than being an agent. (plenty of discussion here about whether to be an agent or not)

    There are services that pull sales info from the public records. RealQuest, Realist, Hains criss cross, Data quick, etc. No pictures or descriptions but often other info that is useful.

    Also in some states you can get access to MLS by being an "assistant" to and agent. This avoids the hassle and expense of being an agent. Since my partner is also an agent I am thinking of giving up my license and getting MLS access through him.

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  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    15y
    Originally posted by Jason D.:
    You're adjusting the subject property to the comparable.

    Actually, you should always be adjusting the value of the comparable property, never the value of the subject property. It actually does make a difference...

    Podcast Guest on Show The Truth About Real Estate Investing in 2024 (What Investors NEED to Know)
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  • Curt DavisBusiness Member
    Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
    15y

    To get access to the MLS as an assistant you need to find a brokerage that will allow you to leach off them without the intention of becoming an agent. This only works with close friends as any legit company will not give you this access for free. I say go get you license. You will be one step up on most wholesalers and it will add another level of credibility showing you that you take this serious!

    Curt Davis - KAIZEN Realty538 Reviews
    WebsiteView Page
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  • Stinson Bland
    Wholesaler · Dallas, TX · Member since 2011 · 294 posts · 152 votes
    15y

    You may want to check out investway.com. The website pulls most of the MLS info needed: address, size, layout, year built, DOM, photos, description, price, price per sq ft, distance to subject property, date sold and listed, and I'm sure I'm forgetting some info.

    I am not affiliated with the website but I do use their service.

    I also use my realtor to pull comps and CMA reports to double check my work on tougher ARV's.

    1Reply
  • Tyler S.
    OP
    Real Estate Investor · Midwest City, OK · Member since 2011 · 97 posts · 2 votes
    15y

    I understand how to adjust comps but I dont understand why. I dont understand how i can tell the value of subject property after adjusting comps.

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    15y

    You're adjusting the comp values to be truly comparable. The sales prices of the comps are real data. But if the comp has (say) four beds and yours has three, you have to subtract from that sales price to make it comparable to yours. Or, add to the actual sales price if it has three beds and yours has four.

    If the square footage is different an appraiser will use an adjustment factor for that, too. But its less than the $/sq.ft. you would get from the size and sales price. On appraisals is roughly a third of the $/sq.ft. for ground floor, less for second floor, and very little for basement.

    Once you've adjusted the values for all your comps, you more or less average them. Is say more or less because its usually not a simple average and I'm not sure exactly what calculation the appraiser is doing.

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  • Tyler S.
    OP
    Real Estate Investor · Midwest City, OK · Member since 2011 · 97 posts · 2 votes
    15y

    I still don't understand because that's like saying this house will sell for this much because I subtracted whatever amount from a greater comp. It's like saying ill pay the amount of a 2 foot table for a 4 foot table because I subtracted the cost of 2 ft. From the 4 and made them equal. Because even when when you adjust the properties are still never the same. I don't know if I'm looking at it wrong or what I just dont understand how I can tell if the value of a property goes up or down by adjusting

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  • Chris Martin
    Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
    15y

    Appraisals are not an exact predictor of future sales prices. They are a one day snapshot of someone's (trained) opinion of value. Then you have issues like this, directly from an current appraisal that basically says there is no way to value the property: "The problem with the MC data presentation is that the subject's submarket is so small, wild fluctuations can appear from period to period... No truly like kind sales were available from within the past 12 months... This market has effectively collapsed over the previous 12 to 18 months... price for fixerupper properties have dropped to lows not seen in a generation"

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  • Jon C.
    Real Estate Investor · Phoenix, AZ · Member since 2008 · 74 posts · 14 votes
    15y
    Originally posted by Tyler S.:
    I still don't understand because that's like saying this house will sell for this much because I subtracted whatever amount from a greater comp. It's like saying ill pay the amount of a 2 foot table for a 4 foot table because I subtracted the cost of 2 ft. From the 4 and made them equal. Because even when when you adjust the properties are still never the same. I don't know if I'm looking at it wrong or what I just dont understand how I can tell if the value of a property goes up or down by adjusting

    I'm not understanding what you are not understanding :D

    All things being equal, a four bedroom house is worth more than a three bedroom house. If you want to buy a house that has three beds but all the sold properties in the area are four beds, you will need to adjust. It seems pretty straight forward to me. The big question is how much to adjust.

    In my area, there are a lot of neighborhoods where half the homes have pools and half do not. I'm not sure how to adjust that since some people(like me) don't want a pool but I assume most poeple do. So I guess it adds value but how much?

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  • Tyler S.
    OP
    Real Estate Investor · Midwest City, OK · Member since 2011 · 97 posts · 2 votes
    15y

    So just because a home has more features than another means the one that doesn't have as many features has equal value?

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  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    15y
    Originally posted by Tyler S.:
    I still don't understand because that's like saying this house will sell for this much because I subtracted whatever amount from a greater comp. It's like saying ill pay the amount of a 2 foot table for a 4 foot table because I subtracted the cost of 2 ft. From the 4 and made them equal.

    What if you knew that a 2' table generally sells for about 60% of what a 4' table sells for? Or what if you knew that a 2' table generally sells for $15 less than a 4' table sells for?

    Armed with this information, if you walk into a store and want to know a reasonable price for the 2' table there, you can ask what the price of a 4' table is, and then use the adjustment information you have.

    This is what appraisers do. They know that in a certain area, that extra bedroom will add $x to the average value of the house, so if they find a house that is off by that one bedroom, they subtract $x to get a reasonable estimate.

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    15y

    OK, one more try.

    Your house is, say, a 1200 sq.ft. 3/2. Your comp is identical in every way except that its 1300 sq.ft. It sold for $130,000. That's $100 per sq.ft. An appraiser will come up with some adjustment for the size. Based on ones I've seen, I'd say that will be about $40 per sq.ft. The difference is 100 sq.ft. Time $40 per square foot is $4000. The appraiser will subtrace $4000 because your house is smaller. So, the adjusted value of this comp will be $126,000. Based on that one comp, your house would appraise at $126,000.

    Lets throw in some other factors. Say yours has a garage and the other house doesn't. Say an appraiser thinks a garage is worth $10,000. The appraiser would add $10,000 to the sales price of the other house. Combined with the square footage difference, the adjusted price is now $136,000.

    The appraiser will do this for each house he or she has chosen as a comp. So, say they come up with $136K for one, $130K for another, and $140K for a third. A simple average would be $135,333. Again, though, I'm not sure its a simple average.

    Of course there are MANY factors - size, beds, baths, style, garage, parking, alleyway, busy street, next to a sewer treatment plant, etc. An appraiser will try to find comps that are as similar as possible. And then they do these adjustments.

    Hopefully that makes sense.

    Whether you agree with this process or not is irrelevant. This is how appraisers work.

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  • Tyler S.
    OP
    Real Estate Investor · Midwest City, OK · Member since 2011 · 97 posts · 2 votes
    15y

    Ok. I understand better now.lol whew

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