What is a “Comp?”

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My recent post on appraisals generated some thoughtful and insightful comments.  One noted some folks may not really know what a “good comp” is.  That got me thinking.

Sometimes we “more experienced” investors forget that people new to the real estate investing world are hearing many of the terms that we widely use for the first time.  “Comp” is definitely one example.

So let’s start at the beginning.

What is a “Comp?”

Comp is short for comparables.  Comparables are certain properties that are used to evaluate another property.  Comps are often used by appraisers to estimate market value, by realtors to determine a probable sales and/or asking price and by governments for property tax purposes.

So, what is a “good comp?”

Let’s take a look.

What to Look for in a Good Comp?

A “good comp” will have several characteristics.

  1. The comp should be in the same general area.  Remember, location, location, location are the three most important things driving value in real estate.  In my part of the world, for example, similar homes only a few blocks apart can vary widely in value.
  2. It will be a similar property.  If you are trying to determine the value of a three bedroom two bath home you do not want to look at commercial properties.  Rather, you want to find other three bedroom, two bath homes.
  3. The comp shoud be similar in size.  If your property has 1,500 square feet of heated space, you should look for properties with similar sizes.  800 and 3,000 square foot homes are generally not the best comps.
  4. The comp should have other similar features if possible.  These could include items like a two car garage, a similar sized lot, fireplaces, central heat and air, etc.
  5. The comps should be similar in age and condition.  New “infill” homes in an older neighborhood may not compare well with the older homes.  Further, the property’s condition will also make a difference.  Look for comp properties that are in a similar condition.
  6. The comps should have been sold fairly recently.  Within the past 90 days is best but really no more than 6 months.  The market can just change too much in that short period of time.
  7. The best comps are those which are so called “normal sales.”  That is a sale between a willing seller and a willing buyer.  The seller should be non-distressed, that is, the seller should not be a bank, estate, tax sale, etc.  The best comps are those that are between a non-distressed buyer and seller on the open market.

So there you go – those are the basics.  There are many other variables that can go into determining a property’s probable market value.  But if you can find at least three or four properties (comps) that meet the above criteria, you will have a pretty good idea of the market value for your property.

Related: What is Market Value?

Comp Difficulties

Sometimes however you will not be able to find any good comps.  The only sales may be foreclosure sales, your property may be very unique or there may not be any recent sales at all.  These situations make valuations much more difficult but not impossible.  It is situations such as these when a good appraiser maybe well worth the expense.

What are your experiences these days finding and working with comps?  Are they easy or difficult to find?  Any unique experiences you want to share?  Please let us know in the comments.

Photo: jimmywayne

About Author

Kevin Perk

Kevin Perk is co-founder of Kevron Properties, LLC with his wife Terron and has been involved in real estate investing for 10 years. Kevin invests in and manages rental properties in Memphis, TN and is a past president and vice-president of the local REIA group, the Memphis Investors Group.

20 Comments

  1. My nearest neighbor is 1/3 mile from my home, which we purchased Dec 2012. There basically are no comps in this area. Anything in the county (and even the next county over) that isn’t within a municipality was considered the same neighborhood, and the homes used as comps in the appraisal weren’t even close to the same sq ft and lot sizes.

    The lender asked for a 2nd appraisal, which ended up using the same comps but came in lower. The first one at 54,000. the second at 47,000.

    Basically, I came to the conclusion that the appraisers don’t have a clue what my home is worth. Oh well- we love it and wouldn’t sell for 100,000!

      • Kevin Perk

        William,

        Many appraisers do start with the local tax assessor’s data and then refine that value based upon other sales of similar properties. All appraisers upload their appraisals into a database for other appraisers to use I believe, much like or a part of a realtor multiple listing system. But in the country it certainly is a bit more difficult.

        Thanks for reading and commenting,

        Kevin

        • Kevin,

          I would be interested to know about the database that appraisers upload their files to for other appraisers to use.

          Can you point me in the direction of that database ?

          Thank you
          Adam

        • Kevin Perk

          Adam,

          Our local Multiple Listing Database (MLS) or realtor database is where they are uploaded here. I cannot say for other areas however.

          Thanks for reading and commenting,

          Kevin

    • Kevin Perk

      James,

      That you love your home is the most important part. But, I agree with you that it can be really difficult to find good comps way out in the country. Hopefully your next appraisal experience will be a better one.

      Thanks for reading and taking the time to share your experience,

      Kevin

  2. Karin DiMauro on

    Great topic, Kevin! You could do a whole series of blogs on comps and probably keep yourself busy for a year on that subject alone. 🙂

    I’m lucky in that my business partner is my broker (oh, and also my Mom!) and has been trained specifically in appraisals. She used to do them as a subset of her business. So she helps me out tremendously and I always ask her to double-check my work.

    To add to what you mentioned about similar size, I specifically try to stay w/in about 10%-15% of the square footage when doing comps – so if a property is 1500sf, I’ll do a search for properties between about 1350sf and 1650sf. Maybe 1300-1700.

    The other thing my partner/Mom is great at is in helping me determine comparable styles – i.e. can you use a Colonial when looking for comps for a Raised Ranch, that type of thing. I still need a lot of help with that, particularly when I come across split levels, farmhouses, and homes marked “other.” I’m surprised at how many agents will use comps that are not similar styles … but then again, they’re usually the ones who are trying to convince a buyer of an inflated price. (Or trying to convince a seller they can get more for their property than they can!)

    The bottom line for us is that if it’s too difficult to comp, we generally stay away. The thing to remember is, if we’re having trouble comping it, the appraiser is going to as well – and that could put the sale in jeopardy b/c the buyer could have trouble getting a mortgage.

    Thanks again for an interesting post!

  3. I have a thought I think that writing about Comps. could help someone further understand how investing works, but I have found for myself that others learn more by looking up basics. I have seen a one time, I am not sure where it is but here in bigger pockets there is a glossary and I would think that people would learn more if you pointed out that. Perhaps the content you wrote could be valid but I would prefer to talk about more important things such as what are your new strategist this year that have made money for you in your LLC. People need to learn by following a process if you give shortcuts they may never learn the value of following that process. One more thing if you don’t know what a comp is then I suggest you get a Mentor.

    • Kevin Perk

      William,

      Thanks for sharing your thoughts.

      A glossary is a good idea, perhaps some of the higher ups here will think about putting that together or point us to the link if there already is one.

      Otherwise, there are thousands of folks visiting this site. Some for the very first time. All with different levels of knowledge. Some are thinking about getting in to real estate and reading perhaps one of my or another blogger’s posts on their particular investment strategy. While reading that post, they see terms like comp, ARV, cashflow, balloon payment, etc. Some will know what they mean. Some will have a mentor they can ask. Others however may need or want a bit more education, and that is where the entire BP community comes in.

      When anyone sees a term such as comp, they can search here and find this or a forum post about comps and learn. Best of all, they can learn here at their own pace, in a way that fits their needs. If anything, I think more posts should be written on some of the very basic aspects of real estate investing, as well as the advanced strategies. I try to do a bit of both, with some fun things thrown in as well. Remember, we were once newbies also who did not know what we did not know 🙂 I am glad I had resources like BP to use and further my investing career.

      Again, thanks for reading and sharing. I do appreciate it,

      Kevin

      • I just have one more thing to say, I would hope that if a person is going to invest anything in this day and age with all the Gurus out their trying to sell their useless programs and telling everyone how easy it is to get started they should be executed. It is exactly what happen when Realtor’s were telling people to do a cash out refi on there already paid off home and buy a couple of properties and get a loan for interest only 4/1 and at the end of four years flip the houses and retire in Florida or some place. Lets be extremely careful on how we talk to people that are new or just interested.Here is a link if I may many people use this site hope the link is OK. I have no gain from this link. http://www.realtytrac.com/foreclosure/real-estate-terminology-lookup-A-C.html. Just because you have memorized all that is in the glossary it still won’t help you in investing. You need some sort of knowledge of Finance and have a good all around knowledge of Construction and also have some sales experience and then you would be ready to get someone to show you how they work. Because without all those that I have mentioned more than likely you will loose your butt.

        • Kevin Perk

          William,

          Gurus can help, but yes you need to do your homework and develop an investment strategy that fits your needs and goals. Just jumping in blindly without proper knowledge is a good way to get burned.

          Thanks again for writing and commenting,

          Kevin

  4. I do a lot for BPOS for banks and HUD. They have very strict guidelines for any comps I pull and those can really help newbies.

    1. square footage is always calculated above ground and must be within 20%
    2. age must be within 10 years, unless the home is over 50 years old, then exceptions can be made
    3. Home must be same property type; single family detached, condo, townhouse, etc.
    4. comps must be within 1 mile in a suburban area and preferably in the same neighborhood. If you are rural you can go out further.
    5. Comps must have sold within 6 months

    These are characteristics they prefer

    1. bedroom count within one or less of subject
    2. same style; two story, ranch etc
    3. same condition
    4. some companies require I not use REO comps

    There are exceptions to every property. if I can’t meet the above criteria I have to give a detailed explanation of why I didn’t find comps that did fall into those categories. One thing the banks don’t put much weight on is basements. They are very valuable in Colorado, but in other areas of the country not so much.

    • Kevin Perk

      Mark,

      Valuable information.

      Basements are not a very big thing here either. I think I am one of the few who actually has one. Just goes to show how every market is different.

      Thanks for sharing and thanks for reading,

      Kevin

  5. Hi Kevin:
    Our real estate agents use the MLS for comps. Those, of course, are only based on sales that occur through the MLS.

    In our office, we use a service called Courthouse Retrieval System (CRS). CRS provides very accurate data for ALL sales – not just those on the MLS – and gives the most accurate comps we have found.

    They’re not national yet, but the best we have found locally, for sure. Some counties have amazing GIS systems that we prefer but not every county is tech savy so that’s a hit and miss kind of comp system.

    Thanks for your post.

    • Kevin Perk

      Karen,

      CRS is a great service. It is available here.

      We also have our local register who has every deed ever recorded in Shelby County since 1819 scanned and on line for free! It is searchable by address, owner name, parcel, etc. It is a great service.

      According to my wife, our local MLS also has the non-MLS sales included if you do a “comp” search. I guess each locale is different.

      Thanks for taking the time to read and comment,

      Kevin

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