Real Estate Comps: Your Essential Guide

Published on November 22, 2017

– 5 min read

In the market for a new home? You might feel like the process is chock-full of specialized terms, including everything from “escrow” to “underwriting” and “real estate comps.” But don’t fret—we’re here to make it simple.

In this post, we’ll focus on real estate comps. What are real estate comps, how can you find them, and what other key things should home buyers know about comps? We’ll start with a straightforward definition.

What are real estate comps?

Short for “comparable real estate sales,” real estate comps help determine a property’s value. Participants in real estate transactions—including buyers, sellers, lenders and realtors—conduct comparative market analysis to estimate how much a home is worth based on various data points. If your realtor has mentioned “pulling some comps,” he or she is referring to this process of market research and analysis.

Generally, real estate comps are similar, recently-sold properties in the same area as the subject home. A home is theoretically worth the amount someone is willing to pay for it—so you can estimate a home’s value by looking at how much someone has recently paid for a similar home.

3 key things to know about real estate comps

1.Comps are important at various stages of the home-purchase and home-ownership process.

If you’re just starting your home-buying journey, you’ve probably visited several websites to check out current listings and recent sales, getting a sense of what homes cost in various areas. Could you afford to buy a home in a neighborhood close to your office, or do you get more bang for your buck in another area? In your effort to establish a feel for the market, you were researching comps—perhaps without even realizing it.

As you prepare to make an offer, you’ll continue looking at comps. Was a house in your target area recently sold above asking price? Or perhaps below? You and your realtor can analyze relevant comps to zero in on the right offer.

Once your mortgage process kicks into high gear, you’ll need an appraisal. An appraisal is a written document detailing an opinion of how much a property is worth. Lenders use appraisals to verify the purchase price of your home is in line with its value. To calculate your home’s value, an appraiser will consider carefully selected real estate comps, among other things.

If you already own your home and are considering refinancing, you’ll also need an appraisal based on quality comps. If your home doesn’t appraise for the value you expect, there may not be a net-tangible benefit to refinancing. Or, if you’re pursuing a cash-out refinance, you may not be able to draw out the amount you want.

2.Choosing comps can be more of an art than science.

Since there’s an element of discretion involved, methods for establishing the best comps can be open to debate.

Here are several factors commonly considered when choosing comps:

  • Location: Proximity is important. Many experts only consider a property to be a quality comp if it is within a half-mile of the home in question.
  • Time frame: The housing market changes frequently, so more recent sales are typically viewed as more relevant comps. The applicable window is usually up to six months, though it can be longer.
  • Key characteristics: Age and style of the home, livable square footage, number of bedrooms and bathrooms, and overall condition are most important.
  • Other features: This is where you can account for views, amenities, street noise, storage space or school district. Let’s say the home in question is in a top-rated school district. If you find a recently-sold home that is identical except it’s in a lesser-quality school district, it might not be a great comp.

Lastly, some lenders require that comps used for an appraisal meet certain guidelines. Fannie Mae, for example, requires a minimum of three comps that have closed within the last 12 months, and provides a specific process for describing the proximity of comps to the subject property.

3.There are several ways to research comps.

Where can you find comps? Home buyers have several choices, many of which are free, including Zillow, Trulia, Redfin and Realtor.com. Some allow you to sift through recently sold listings, and others have their own valuation tools. If you’re working with a real estate agent, he or she will likely have access to Multiple Listing Service databases, which can also be used to comb through recent sales.

Have more questions about the home-buying process? Stay tuned to our blog or chat with one of our licensed Loan Specialists. If you’re ready to start house hunting, you can get a personalized rate quote in 3 minutes.

Steven Fung
Steven Fung is a licensed Loan Specialist at Clara with over 17 years of experience. When he doesn’t have his mortgage hat on, he enjoys repairing old cars and working on home improvement projects.
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