How to Run Real Estate Comps on a Property

To understand a property’s market value, “comparable sales,” often shortened to “comps,” are a fundamental tool. This process involves examining recently sold properties that share similarities with the subject property to estimate its current worth. Understanding how to effectively run comps is a valuable skill for anyone navigating the real estate market, including potential buyers, sellers, and existing homeowners. This analytical approach provides insights into market dynamics and helps inform strategic decisions.

Understanding Comparable Sales

Comparable sales are recently sold properties that closely resemble a subject property in their characteristics. These properties serve as benchmarks to determine a realistic market value for a home. The primary purpose of utilizing comps in valuation is to establish a property’s likely selling price based on current market activity. This method is widely used for residential property valuation, guiding sellers in setting competitive listing prices and assisting buyers in formulating informed offers.

The underlying economic principle guiding the use of comparable sales is the principle of substitution. This principle asserts that a rational buyer would not pay more for a property than the cost of acquiring an equally desirable and functional substitute. For this principle to be effective, there must be other similar properties recently sold in the area that could serve as alternatives. Essentially, if a similar property offering comparable utility and benefits is available at a lower price, a buyer would typically choose the more affordable option.

Identifying and Selecting Relevant Comparables

The process of determining a property’s value begins with identifying potential comparable properties and gathering their relevant sales data. Multiple sources are available for this information, each offering different levels of detail and accessibility. Real estate professionals often utilize the Multiple Listing Service (MLS), a comprehensive database containing detailed information on property listings and sales, which provides current and accurate data. Public records, maintained by county assessor’s offices, also offer transaction details, though this information can sometimes be less timely. Additionally, various online real estate platforms provide sales data, although the accuracy across these platforms can vary.

Selecting appropriate comparable properties requires careful adherence to specific criteria to ensure their relevance. Proximity is a primary consideration, with optimal comps typically located within one mile of the subject property, ideally within the same neighborhood or a similar school district. The time of sale is also important, as recent transactions, generally within the last three to six months, provide the most accurate reflection of current market conditions. In rapidly changing markets, a shorter timeframe may be more appropriate.

Properties selected as comparables should share the same property type, such as single-family homes, condominiums, or townhouses, to ensure a valid comparison. Similar square footage of living area and comparable lot sizes are also important, ideally within a 10% to 20% variance of the subject property. The number of bedrooms and bathrooms significantly impacts value, so comps should generally have the same count as the subject property.

The age and general condition of the comparable properties should also be similar, accounting for construction age and any significant renovations or updates. Features and amenities like garages, pools, basements, or views also contribute to value and should be considered when selecting comps.

Making Adjustments to Comparables

After identifying and selecting relevant comparable properties, the next step involves making dollar-value adjustments to their sales prices. This process is necessary because no two properties are identical, and adjustments account for the specific differences between each comparable and the subject property. The goal of these adjustments is to create a more equitable comparison, effectively normalizing the sales prices of the comps as if they were identical to the subject property.

When making adjustments, a specific rule applies: if a comparable property is superior to the subject property in a particular feature, its sales price is adjusted downward. Conversely, if the comparable is inferior to the subject property in a feature, its sales price is adjusted upward. For instance, if a comp has an extra bathroom that the subject property lacks, its sales price would be reduced by the estimated value of that additional bathroom. This ensures that the adjusted price reflects what the comp would have sold for if it had been more similar to the subject property.

Common categories for adjustments include:
Time of sale, where an adjustment may be made for market changes if the sale occurred several months ago.
Differences in lot size or specific lot features, such as views or corner lot premiums.
Variations in living area square footage, as well as the number of bedrooms and bathrooms.
Condition and quality of construction, including any recent renovations, upgrades, or significant deferred maintenance.
Presence or absence of amenities like a garage, finished basement, or swimming pool.

Quantifying these adjustments often involves a blend of market analysis and informed judgment. Methods such as paired sales analysis are frequently employed, where two very similar properties that differ in only one attribute are compared to determine the value contribution of that specific attribute. For example, comparing two identical homes where one has a pool and the other does not can help estimate the value of a pool. While precise data for every adjustment may not always be available, appraisers and real estate professionals rely on accumulated market knowledge and statistical analysis to estimate reasonable adjustment values.

Synthesizing Data for Valuation

After all necessary adjustments have been applied to the comparable sales, the next step involves synthesizing this adjusted data to arrive at a final estimated value for the subject property. This stage requires a careful review of all the adjusted sales prices, as they will likely present a range rather than a single, identical figure. The objective is to reconcile these various adjusted values into a cohesive and supportable conclusion of value.

Several methods can be employed to derive a value from the adjusted comparable sales. One common approach is to weight the comparables, giving more consideration to those that are most similar to the subject property, are more recent in their sale date, or required fewer adjustments. For example, a comparable that is geographically closer and has almost identical features might receive a higher weighting than one further away with more dissimilarities. While simple averaging of adjusted prices can provide a preliminary figure, its limitations become apparent when there are significant variations among the adjusted comps.

A more robust method involves establishing a realistic value range based on the adjusted comparables, rather than attempting to pinpoint a single, precise number. This range acknowledges the inherent variability in real estate and provides a practical framework for buyers and sellers. If there are significant differences among the adjusted comparables, it is important to reconcile these discrepancies by re-evaluating the reasons for the variations. This might involve refining initial adjustments or reconsidering the suitability of certain comparables, ensuring that the final estimate is well-supported by market evidence.

Ultimately, the reconciled data from the adjusted comparable sales is used to determine a final estimated value or a tight value range for the subject property. This final estimate represents the most probable price a property would sell for in the current market, given its characteristics and recent comparable transactions. Buyers can then use this estimated value to formulate competitive offers, while sellers can use it to set an appropriate listing price that aligns with market expectations.