Real Estate Investing: Determining Property's True Value - Comparable Sales
Airfare Daily Deals eCigarettes Eyeglasses Hotels Jewelry Online Backup Online Dating Online Printing Online Tickets Skin Care Textbook Rentals Vitamins Web Hosting Weddings
Find thousands of shopping-related forums
SEARCH

Real Estate Investing: Determining Property's True Value - Comparable Sales

One of the quickest and surest ways to determine value in real estate is to look at comparable sales (comps). If a house that's comparable in most ways to yours sold for $500,000, then chances are yours is worth close to that amount too. It's a good idea to examine at least three to five comps to get a good sense of the local market.

Are there comps?

One of the quickest and surest ways to determine value in real estate is to look at comparable sales (comps). This is especially the case in residential property. The principle is simple to understand. If a house that's comparable in most ways to yours sold for $500,000, then chances are yours is worth close to that amount too. It's a good idea to examine at least three to five comps to get a good sense of the local market. Of course, there are many concerns with using comps as an appraisal tool. These include the timeliness of the comps, their true similarity, even the reliability of reported prices. It's important to understand that not all properties have comps. If the house you're considering purchasing is in a tract of hundreds of similar homes, then finding comps should be no problem. With condos and co-ops, finding comps is also usually no problem. But if you're considering a unique home (for example, one that was custom built), then finding comps can be difficult. This is particularly the case in higher-priced and rural areas. And when nearby comps aren't readily available; they can throw off the appraisal process. For example, when professional appraisers can't find nearby comparable homes, they sometimes will go to a distant location, perhaps dozens of miles away, where a similar home might have sold. They will extrapolate from that sale to the subject house. However, since all real estate is local, what homes in one area are selling for may have no bearing whatsoever on what homes in another area are selling for. If there are no comps in the immediate area, you should consider alternate methods of appraisal such as square foot cost, replacement cost, and capitalization of income.

Are the comps recent?

For the comps to be useful, they must be recent. How recent really depends on market trends. If the market has been slow moving, prices changing only a few percent a year, then a comp that's a year old may be fine to use. On the other hand, if the market is rapidly accelerating, then comps that are even six months old might be considered out of date. You might want to strive to get only comps that are from the most recent sales. Beware of real estate agents who go to their computers and pop out a dozen comps for the subject property and want you to use them for comparison when shopping. Check the dates. These older comps can lead to your making offers that are too low or too high depending on market trends. As a result, you'll miss out on getting a property for a good price.

Need an answer?
Get insightful answers from community-recommended
experts
in Real Estate Investing on Knoji.
Would you recommend this author as an expert in Real Estate Investing?
You have 0 recommendations remaining to grant today.
Comments (0)
ARTICLE DETAILS
RELATED ARTICLES
ARTICLE KEYWORDS