In the real estate world, “comps” is the shortened term for comparables, which refers to similar homes sold near a property for sale. One of the most critical points of selling a home or making an offer on one is knowing where to set the price. A licensed real estate agent is in the business of researching and knowing the market where you live. He looks at comps on a daily basis to keep on top of market trends and to help both buyers and sellers determine what the market will bear in terms of price.
Comps Help Set Price
For sellers a real estate agent prepares a CMA (comparative market analysis) of similar homes sold within a close radius in the past three to six months. In fast-moving markets, a Realtor® uses data from homes that sold even more recently. After a pool of recently sold homes are selected by location, an agent further refines the comparison with additional considerations:
∙ Homes sold recently in the same subdivision as yours serve as the best comps, as long as they are of similar design and layout. When there are no suitable sold comps in your neighborhood, an agent will need to look at further distance for a better match.
∙ Characteristics of other homes compared to yours are critical to choosing comps. Architectural style, number of bedrooms, bathrooms, square footage, lot size, and other internal features should be very close to your own to qualify as a good comp. Unless your neighborhood was built by one developer with identical floorplans, it’s rare to find an exact comparison on every feature.
It’s important to understand the CMA because it informs you of the current market and trends in your area. An agent explains the data and its relevance, which gives you a benchmark to set a price.
For buyers, a list of comps of similar homes helps determine whether a home’s price is fair or off the mark. Still, buyers and sellers will view comps through different lenses since buyers want to pay the least amount possible and sellers want to net the most amount possible. Subjectivity is always a factor.
Hot and Cold Markets
If the market is hot, meaning there are more buyers than available homes for sale, home prices go up. In such a case, comps from even three months ago may not account for increased buyer demand today. Desirable areas may see a spike in prices that defy recent comps simply because demand increases quickly. In a cool market, there are more sellers than buyers. This works to a seller’s disadvantage because buyers have more to choose from and will underbid prices to play their advantage. In a cool market, it may be hard for a seller to receive his desired price because declining prices in the neighborhood set a new, lower bar for buyers.
How “Comps” Affect Your Home Value
What your neighbors gets for their house may very well affect what you get for yours if you plan to sell in a similar timeframe. But because there are nuances to comps and sales trends change quickly, it’s important to use the expertise of a Realtor® to determine pricing. He will look at all aspects of your home and every bit of data available on similar sold homes nearby to determine a range that will result in a sale.