Comps: What are they and why are they used in real estate?
Buying or selling a home brings up a myriad of questions. How much should you list your home for? How do you know if you're overpaying for a home? How much will you end up paying in property taxes? Understanding comps can help you answer many of these questions. But, what does comps mean? Comparable sales are an essential part of the homebuying and selling process. If you’re not sure where to begin when it comes to comps, don’t worry — we’re here to help guide you through these questions so you’ll be well prepared.
Defining Comps in Real Estate
If you’re a first time homebuyer or home seller, you might find yourself overwhelmed by the amount of lingo in the real estate world — such as real estate comps. We’re here to answer the question “what does comps mean in real estate?” and give you an inside look on everything you need to know about comps.
What Does Comps Mean?
If you've come across the term and wondered, "What does comps mean?" you're not alone. Fortunately, comps has a fairly straightforward meaning.
Also known as “comparable sales'' or “comparable property values,'' comps examine a set of properties that share similar metrics, such as location and size. Real estate comps look at recent sales of similar homes during a specific time period in a similar area or neighborhood.
This valuation tool is utilized to ascertain a home’s fair market value. Market value is the actual value of a home once it is listed for sale on the open market, and is determined by the amount that buyers are willing to pay for it.
Since there is no single, official source for comps, this assessment can be subjective. This explains why sometimes an assessment of comps can be different from one source to another.
What Factors Are Considered in Comps?
Now that you have an understanding of what comps means in real estate, you might be wondering what factors are considered when determining comparable property values. Comps take into consideration a number of factors, including the following:
- Location of the home
- Conditions of the sale
- Age of the home
- Type of home (such as a single-family home or condo)
- Size/square footage
- Lot size
Upon finding a comparable property, the next step is to find out how much it sold for. As a homebuyer, this will help you assess whether the listing price is fair market value and what offer you are willing to make. In many states, including California, home sales are a matter of public record. This requires conducting a search online or through the county recorder or clerk’s office, which will reveal prices for comparable sales.
The Importance of Comps
Whether you’re a home seller or a homebuyer, comps play an important role during a real estate transaction. What does comps mean for buying or selling a home? Here’s why comps are critical and how you can find and utilize them for your home transaction.
Why Are Comps Necessary?
Real estate comps are necessary because they help compare the worth of one home to another, therefore accurately estimating the value of your home. Additionally, comparable property values factor into a number of components during a real estate transaction. For instance, potential buyers can use comps to see how much they can expect to pay in property taxes. It’s also important for potential buyers to conduct their own research into comps to ensure that they are not overpaying for a home.
How Can You Find Comps for Your Home?
In order to find comps for your home, you'll need to conduct a bit of research. Start by creating a list of defining details of your home. In addition to the characteristics listed above, try to be as specific of possible, noting the following:
- Number of bedrooms and bathrooms
- Square footage and size of lot
- Garage capacity
- Location and school district
- Home improvements, renovations, and amenities
The next step is finding similar homes to yours that have sold recently. Listing syndicate sites are a great way to get an overview of comparable houses in your area that have sold on the Multiple Listing Service (MLS). It’s best to find comps that have sold within the last 60 days, as this best reflects current market conditions.
Whether the real estate market is a buyer’s market or seller’s market can influence how much homes are sold for. In a seller’s market, it’s not uncommon for homes to sell above the listing price, while real estate prices normally decrease in a buyer’s market. Since the housing market can play a role in setting the sales price, current market conditions are a significant factor when it comes to finding comps for your home.
Once you locate similar properties, take their sold prices into close consideration. This is what comps means, after all. Active listings are not accurate comparison points for your home as no one has agreed to buy them yet, so look at houses that have sold.
When you have a possible price in mind, use Aalto’s PriceCheck to be sure you're selling or buying for the best price. Our experts will review your listing price and provide advice based on real-time market insights, data, and comparable sales.
Common Questions About Comps
Here are some common questions you might be wondering about real estate comparables.
Are Comps and Appraisals the Same Thing?
While comps and appraisals often go hand in hand, these two tools are different in the real estate world. Comps look at comparable homes with similar metrics, as well as the sales records of recently sold homes. Appraisals, meanwhile, are formal processes that lenders use to value a home. An appraiser completes a thorough evaluation of a home to determine its fair market value. They have a fiduciary responsibility to the lender, instead of the home seller or homebuyer.
How Do Sellers Use Real Estate Comps?
Sellers depend on comps to determine the correct price point to sell their home. Setting the listing price is one of the most important aspects of selling one’s home. Pricing a home too high runs the risk of driving away potential buyers while setting the listing price too low can leave money on the table. To avoid this, sellers look at comparable sales to establish the fair market value of their home and determine the correct listing price.
How Do Buyers Use Real Estate Comps?
While home sellers use comps to set a sale price, potential buyers refer to comps to determine if a home has a fair asking price. This helps buyers calculate their offer and what they believe is the true value of a home. Depending on current market conditions, the homebuyer might use comps as a negotiating tool. Looking at comparable sales helps protect potential buyers from overpaying on a home.
Get Ready to List or Buy Today With Aalto
Now that we’ve answered the question, “What does comps mean in real estate?” and you understand how comps play a role in setting the value of a property, you’re one step closer to knowing how to set a listing price. Real estate comps are an important tool to ensure that you are getting a fair market price for your home when selling, and they protect you from overpaying as a potential buyer.
From using a traditional real estate agent to doing direct sales, there are many different options when it comes to selling your home. If you’re looking for a more convenient and user-friendly approach, Aalto is the right option for you. Our online platform directly connects home sellers with local homebuyers in the area. This eliminates the need for the traditional real estate process, and streamlines selling and buying.
A much-needed respite from the traditional real estate industry, Aalto takes an innovative approach to the homebuying and selling process. We're committed to guiding you through the process from start to finish. Get started with Aalto today, where you can explore buying or selling your home on your terms and timeline.