“Using comps to determine the value of an investment property is one of the most fundamental aspects of real estate investing.”
In real estate, “comps” is short for “comparables” or “comparable properties.” When you’re looking at real estate comps, you’re looking at how much very similar, comparable properties have recently sold for to get a better idea of what your target property is worth. While there is real estate investing lead gen software out there that will handle comps for you, we’re going to do a deep dive into how to find the right real estate comparables, along with why they matter to your bottom line.
Why Do You Need To Do Property Comps?
As a real estate investor, finding comps is going to help you determine several things:
1. How much to offer on a property
When checking out properties, how do you know if the listing price is fair? Without doing your due diligence, you’re simply hoping that the property owners are asking a fair price.
In the residential real estate realm, finding a similar home for sale in the same neighborhood will give you a much better idea of whether or not the asking price is fair and whether or not the potential is there to get a good deal.
2. How to calibrate your asking price on a property
Just like determining how much to offer for a property, looking at similar nearby properties can help you calibrate your sale price if you’re flipping or selling an investment property.
An asking price is simply that - the asking price. You can ask anything, but what the market will pay is what the property is worth. Finding comparable properties will help you price your property in line with what the market will bear.
3. How to understand past neighborhood performance and gauge future performance
One of the most overlooked aspects of real estate comps is using comps to predict an area’s future success. This is especially critical when buying an investment property; you want to look at historical data to see if properties in your target area are increasing or decreasing in value.
10 Specific Components Of Real Estate Comparables
1. Square feet - One primary driver of property value is the size of the property and overall square footage. You simply cannot accurately compare the value of a target property vs a property that’s half the size, as price per square foot varies greatly based on the size and property type.
2. Year built - How recently the property was built is a huge indicator of how much work it will need. Trying to compare a home built 10 years ago vs. one built 100 years ago isn’t going to give you accurate results.
3. Condition - Much like the point above, when running real estate comparables, you have to compare properties in similar condition. After all, buyers need to know how much work will go into the property, so comparing a dilapidated property with an impeccable property is not an accurate comparable.
4. Date of last major renovation - More recently renovated properties are less likely to need renovations in the near future, and less future renovations means a higher price tag.
5. Type of property (single family home, townhouse, condo, apartment, multi-family home, etc.) - Typically, a multi-family home will be more expensive and generate larger returns than a single family home, so running real estate comps comparing the two won’t be very helpful. When running real estate comps, it’s important that you compare similar types of properties to get the most accurate comparables. Compare single family homes with other single family homes, multi-family properties with other multi-family properties, condos with condos, and so on.
6. Number of floors - This one depends on the floors and the size of the floors. If you’re looking at two similar homes for sale,or two similar sold properties, and House 1 has a smaller upstairs, but a larger downstairs vs. House 2 which has identical floor sizes and similar square footage to House 1, you may be able to use both homes as accurate real estate comparables.
7. Major features (swimming pool, garage size, balconies, etc.) - When running property comps, remember to keep major property features in mind. If two properties are almost identical, but House 1 has a swimming pool and House 2 doesn’t, it should be fairly easy to deduct the rough value of a swimming pool to get a good idea of what House 2 should cost.
Running real estate comps is much easier when major features are consistent between your target property and comparable properties.
8. Number of bedrooms and bathrooms - When all else is the same, homes with more bedrooms and bathrooms will almost always fetch a higher price tag than a home with fewer of either. To get the most accurate comparables, always compare properties with the same number of bedrooms and bathrooms.
9. Land parcel - When many new investors look at a property, they just see a structure. But real estate professionals know the value of land, and two identical properties that have very different land parcels will be priced very differently.
And if that land has features like forests or rivers? That’s even more likely to create a massive price difference, making it very difficult to run property comps between two otherwise similar properties.
10. Amenities (A/C, central heating, etc.) - Simply put, a similar home with central air and heating will be priced higher than the other similar property without it. To get a rough idea of what this difference should be, you can contact a local HVAC company for an estimate of central air/heating installation costs.
What Qualifies As Real Estate Comps?
Keep in mind, not every similar property counts as a comparable.
- The property should have been sold within the last 3 months, but you can go back as far as a year if no applicable properties are available.
- The property must be located in the same area as your target property, or an area nearly identical (gauging identical areas is where real estate professionals have the upper hand on newer investors).
3 Steps To Pulling Real Estate Comps
Here are the three steps you need to find real estate comps:
1. Gather detailed data for your target property using the 10 components that we just talked about.
These include:
- Square Feet
- Year built
- Condition
- Date of last major renovation
- Type of property
- Number of floors
- Major features
- Number of beds/baths
- Land parcel
- Amenities
Be as specific as possible when gathering this information for your target property.
Now, look at similar properties in the same or similar neighborhoods that have sold in the last 3 months. Again, get as specific as you can, matching as many of the above 10 components as possible.
When you’ve done your due diligence and you’re looking to buy an investment property, this is where enlisting the help of a real estate professional comes in handy. They’ll be able to help you understand how the market in this particular area is moving, and whether you can expect an area’s property values to increase or decrease in the coming years.
4 Different Tools To Pull Comps For Real Estate
1. Software
Using a real estate comp tool, like the one included with Leadflow, will give you the most accurate real estate comps you can find - especially if you’re new to real estate investing. Tools like this draw on millions of data points to determine the most accurate property comps. This saves investors time and money, and gives them the peace of mind that they’ve done their due diligence to the same level as seasoned investors.
2. Hire Licensed Real Estate Agents
If you opt not to use software, you can also hire real estate agents or other real estate professionals to help walk you through the comping process. These professionals may have access to the MLS, also called the Multiple Listing Service, which can help you develop accurate comps for your properties.
Keep in mind that Leadflow pulls in data from several sources, allowing users to pull extremely accurate property comps on their own, without the need for a third party.
3. Get A Home Appraisal
Having your property appraised by a licensed home appraiser is a great way to determine the home’s current value. This is a good option for new investors who are just starting out, however, this is not a scalable strategy. If you’re looking at 10 potential properties, hiring an appraiser to evaluate all 10 can cut heavily into your profit margin.
The Power Of Using Software To Perform Property Comps
Leadflow is a next generation real estate investing and lead generation software powered by Ai, and it’s the single easiest, most scalable way to find real estate comps on the market. Here’s how…
1. Begin your property search by typing in your subject property’s address.
2. Once you’re at the property overview, click “Comparables”
3. Select the properties that most closely match your subject property.
Hit “Download report” and get a PDF download of your results to be used during the purchase or sale of the property.
