How to Use Comparable Sales in Real Estate

When purchasing a home or investment property it is important to use comparable sales to estimate price.   The last thing any one of us wants to do is overpay for a property.

However, you need to understand what a good comparable sales price or “comp” is in order to benefit from it.

How to Use Comparable Sales in Real Estate

Many people will browse property listing on the market to estimate the cost of a property.  The thing is – those are just asking prices.

The real question is – are those the prices that properties are actually selling for?  Markets vary and knowing whether properties are selling for less than asking, more than asking or right around asking is important when you are writing up offers.

Know Your Market

You must know your local market.  Buyers market?  Then don’t be afraid to grind down on price a bit.  Seller’s market?  Well, you probably won’t be able to get as cute with the price when making offers.

Getting Actual Sales Data

Again, it goes back to what are properties actual selling for.  The easiest place to get correct sales data is your county or city property appraiser site.  You can see what a property sold for as well as the taxes for the most recent year.   Square footage and the number of bedrooms and bathrooms will also be listed.

The information is solid, but its a bit dated as it can take three months (or longer for areas that have not gone digital yet) to see that data listed.

Comparative Market Analysis

This is another way to more timely get sales prices.  You will need a realtor to pull this data from the MLS, but pulling the most recent six months of sales for similar properties will give you a good idea of prices and where those sales landed in relation to asking price.

How to Use Comparable Data

Obviously we need to make sure the comparable homes we are using to gauge a property are in fact, comparable.

Looking at prices of 4 bedrooms if we are negotiating on a 3 bedroom makes no sense.  We need to find a realistic range to work with.

Here are three items to guide us:
  • Geography

In urban areas and suburbs usually one or two miles is more than enough as homes are relatively concentrated. For more rural areas you may need to go out as far as 15 miles or more.

  • Square Footage

Usually a couple hundred feet is the range, larger or smaller.   More than that and you are now talking about a legitimately bigger or smaller home, which has an impact on price.

  • Style, View, Etc.

Additionally the property should be a similar style.  If you are looking at a ranch home then look for similar styled homes.   If you are buying a condo then make sure you are comparing it to ones on the same floor or with a similar view.

Conclusion

Clearly finding good comps does not have to be rocket science.  Knowing these simple, but important items will enable you to confidently make offers and know you are not overpaying.

2 thoughts on “How to Use Comparable Sales in Real Estate

  1. This is great Mitch! You have a knack for simplifying sometimes complicated information!
    I use the calculator all the time!
    Look forward to your new book rolling out soon!

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