How To Price Your Home Right By Using House Comps - HomeLight

What factors are used when finding comps?

Several factors go into the computation of accurate comparables. Among them are:

• Location: The closer the comp, the better. Home values can dramatically differ in a nearby neighborhood, or even across the street if the view is significantly better. Ideally, urban comps should be within a couple-mile radius. Even better if they’re in the same school district or near the same amenities such as parks or public transport.
• Location features: Comps should include as many similarities as possible, such as proximity to shopping, restaurants, attractions like parks and lakes, and access to public transportation and schools.
• Date of sale: Typically, sales within three to six months are considered comparable because the market can change rapidly, making older sales irrelevant.
• Home and lot size: Many homes are priced per square foot, so finding one of similar size makes for an easier comparison. It’s preferable to find a house within 10% to 20% of your home’s size. If two homes have the same number of bedrooms, but one has substantially more square footage, it paints a different picture of the home’s actual size. Similarly, if two homes have vastly different lot sizes, they aren’t truly comparable properties.
• Number of bedrooms and bathrooms: The number of bedrooms and bathrooms significantly impacts the price of a home, so it’s important to match those numbers exactly in comparable homes.
• Age of the home: Because some buyers think older homes aren’t in as good condition as new homes, or may need more updates than newer homes, it’s important to find homes of a similar age to compare. A range of up to 10 years is generally recommended but could extend further if the property is over 50 years old.
• Condition of the home: While you should aim to find a home near the same age and condition as your own, a comp should also take upgrades, remodels, and additions into consideration.
• Special features or upgrades: Homes with exceptional features, upgrades, and amenities will naturally be valued higher than a similar home without them. Think commanding views, swimming pools, deluxe outdoor living spaces, pristine hardwood floors, and upgraded cabinetry.
• Taxes: Property taxes can vary from one municipality, suburb, or subdivision to the next. That’s why it’s so important to have nearby comps.

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How do home sellers use comps?

Knowing what similar properties in the area recently sold for helps sellers determine market value and correctly price their home for sale, divorcing a seller’s unrealistic expectations based on improvements made or an emotional attachment to the property.

By relying on real-world data as a reference point for pricing a home, with adjustments made according to competitive differences such as features, finishes, size, age, or amenities, comps have become the basis for accurately setting the asking price.

Real estate agents may compile a comparative market analysis (CMA) that analyzes local comparable sales to establish a home’s value. While it’s not a formal appraisal, a CMA often accurately predicts a home’s appraised value by analyzing six to 12 comps within current market trends, such as buyer’s or seller’s market, inventory level, price per square foot, and days on market.

In addition, viewing house comps can help sellers determine which features to highlight in a listing.

How do homebuyers use comps?

Similarly, buyers use house comps to help them calculate a fair offer. Knowing what similar properties in the area have recently sold for can prevent a buyer from overpaying for a home. House comps can also be used as an effective negotiating tool.

Even before a buyer makes an offer, comparables help them zero in on their target home by defining price, features, neighborhood, and other details. Carroll says that buyers may use comps to determine the value of the area as well.

Who else uses real estate comps?

Almost everyone in the real estate business uses comps but for different reasons.

• Agents rely on comps to help their clients. For sellers, comps offer a gauge for determining the correct listing price. Buyers consult comps when calculating a fair offer.
• Appraisers analyze comps in the area and consult the Multiple Listing Services (MLS) as part of their calculations to determine a home’s value, usually for mortgage approval. Most lenders require an appraisal to make sure the home is worth the purchase price, but some sellers also use an appraiser to accurately price their home.
• Lenders use valuations as a basis for home loan terms. They will assess whether the sale price aligns with current market value and whether a mortgage loan is commensurate with the home’s true value. 

Others may also rely on comps or appraisals. For example, comps might be used to resolve contested estate settlements, insurance claims, or divorces. Carroll notes that trust attorneys often use comps and appraisals.