Anyone who sells or buys a home is going to hear a lot about comps. But what does it mean? What are comps? And why are they so important?
The term comps is real estate lingo for comparable properties. These are the other homes that surround the property you intend to sell or buy. Whether you like it or not, they have an effect on the value of that property. Let’s look at what exactly gets considered when comparing your home to the others surrounding it.
Location
Even though your home is in the same neighborhood as the comps, the location within that neighborhood makes a difference. If your home is next to a busy road, train tracks, or an industrial area, it can affect the price.
The Lot
Lot size obviously makes a difference in pricing. If your home comes with three-quarters of an acre, it might fetch a higher price than a comparable home on a quarter-acre lot. Additionally, if two lots are the same size, their usability might affect price.
Renovations and Upgrades
Renovations and other improvements have a big effect on a home’s value. Home with renovated bathrooms, updated kitchens, hardwood flooring throughout, et cetera, will go for a higher price than similar homes without those upgrades.
Other Features
A home that has the master bedroom on the bottom floor isn’t the best comp for one that has all three bedrooms upstairs. Some specific features can affect value, such as premium views, corner lots, custom features, and a finished basement or attic space.
Sales Price
A home’s list price doesn’t have anything to do with its actual value. What matter is the price someone actually paid for that home. Just because Joe Schmo down the street chose to list his home at $300,000, it doesn’t mean your home (or his home, for that matter) is worth that. If similar homes in the neighborhood are actually selling for $250,000, Mr. Schmo’s home might not appraise for $300,000, and buyers won’t be able to obtain financing for it.
Timing
The best comps are those that are either pending or very recently sold. A home that is pending sale is a piece of real-time market data. Sales older than six months to a year don’t necessarily reflect current market data.
Trust in your real estate agent’s expertise to find the best comps to determine your home’s listing price. If you have any questions about why a certain comp has an effect on your home’s value, don’t hesitate to ask! A great agent will be happy to help you understand exactly how comps work.
