When purchasing a home it is important to use comparable sales to gauge price. No one wants to overpay for a property so let’s discuss exactly what to look at to price correctly.
Hint: It’s not looking at listing prices.
Understanding Comps When Buying a Home
You or your agent can look at listing prices all you want, but these prices will only be useful if actual sale prices are near them.
Most of the time you will find that actual sales price is slightly below asking, however every market is different.
At the time of this writing, places such as Denver and San Francisco are consistently seeing sale prices well above asking as those markets are boiling hot.
Know Your Market
This one is simple. You must know your local market. Buyers market? Then don’t be afraid to grind on price a bit more. Seller’s market? Well, you probably won’t be able to get as cute with price.
Getting Actual Sales Data
The easiest place to get correct sales data is your county’s property appraiser site. All property sales information is public info and listed there.
Not only can you see what a property sold for, but also square footage, number of bedroom and bathrooms as well taxes for the most recent year.
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 use-able range though.
In urban areas and suburbs usually one mile 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 a baring 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.
Clearly finding good comps does not have to be rocket science. Knowing these simple, but important items will enable you t confidently make offers and no you are not overpaying.
If you enjoy my rental property investing tips, then you will love the book:
I walk you step-by-step through finding, buying and renting out a rental property. The book is your personal mentor!
Be sure to use the property calculator so you can run the numbers and buy right– my gift to you