Where can investors find real estate comps?
Finding comps is a critical part of wholesaling, flipping, and acquiring properties. It is also one of the areas which creates the most confusion for investors too. In fact; property valuation in general is something that many Realtors still struggle with. So where can real estate investors find comps, how do they use them?
COMPS ARE FOR
Real estate comps are used to compare a property to others to determine value and resale potential. They are used to guide offers and as a power tool in negotiations, as well as for justifying and supporting resales.
Get the comps right and you’ll be creating more profit in each deal. You’ll be flipping houses faster. You’ll be crushing risk, while elevating your upside potential.
Real Estate Comps vs. Appraisals
Pulling comps is not the same thing as obtaining a full property appraisal. It’s similar, but not the same.
A true real estate appraisal involves taking photos of a property, measuring spaces, researching data and building costs, talking to professionals, and using legally regulated forms and specific rules. All of this is done by a licensed appraiser’s office.
Investors gain the advantage in pulling comps due to speed and costs. They can beat the competition who waits weeks for appraisals, need an appraisal contingency in the contract, and are limited by the cash they have to spend on appraisals.
Once you know your market and have mastered comps you will find that you can operate with great accuracy without needing a full blown appraisal upfront every time. However, it is important to be aware of the differences and details of full appraisals. Appraisers have to follow tight rules, guidelines, and calculations. If end buyers, or their end buyers will be using conventional financing and will have to pass appraisal reviews, you must know what will fly or impact valuations then.
HOW TO FIND COMPS IN YOUR AREA
So how can you find your own comps?
There are a number of ways to obtain comps, including:
BPOs
Broker Price Opinions are considered a viable substitute for appraisals in many situations, but not all. These are often provided by real estate brokers (not agents) to banks looking to value their portfolios.
CMAs
A Comparable Market Analysis report is provided by a real estate agent (licensed salesperson). These are not official opinions of value accepted by banks or mortgage lenders, but can provide some guidance. Agents often provide CMAs as a free service to sellers from whom they wish to gain listings from. There are various types of real estate software for compiling a CMA report, but it is really down to the agent’s discretion and choice which comps are used.
Zillow
Zillow is now one of the longest running online home value estimation tools. Unfortunately Zillow’s Zestimates are also notoriously some of the most inaccurate. They have potentially derailed more deals than they have created due to the algorithms used and data portrayed. It can be used for quick lookups, if you know how Zillow compares to other valuation methods in your area, and you know the specific properties.
Public Records
Public records from the county and county property appraiser’s office can have some of the most accurate data. It’s not always perfect as it depends on what information is recorded, but it is the official record. Counties have gotten better about this information over the years, and more have added additional online tools. However, there can be a significant lag time between events like closings and showing up on line, search tools can be quirky, and some areas are lagging behind in technology. Note that in some instances fires or other disasters have eliminated periods of these records.
The MLS
The Multiple Listing Service is one of the easiest, fastest, and free ways to look up property information. It is also one of the easiest to manipulate. The consumer facing portal Realtor.com gives quick and basic access to information on properties listed for sale. However, it is critical to note that this information isn’t always complete, fresh, or accurate.
AVMs
Automated Value Models are like computer generated mini-appraisals. Cost wise they are typically far cheaper than a full appraisal. They are also often less accurate. Some investor will want more than one, from different sources to be confident in their determination. However, banks have long used these as streamlined appraisals and for appraisal reviews. Odds are that with good ones you may be looking at the same information a bank would when making a lending decision.
Comp Software
There is also comp software for pulling your own comps. This can still be notably cheaper than ordering third party AVMs, and far easier and faster than trying to compile data from a variety of questionable sources.
Some of these methods may work better or worse depending on where your target area is. It is also important to know how these tools can vary in accuracy from one destination to another. For example; if you look at tax assessed values in one state or county they may typically be 25% under appraised values. In another county or state they may be spot on. Some areas have rapid reporting and public records online. Some may not, and can take months to reveal closed transactions.
HOW TO COMPARE REAL ESTATE COMPS
So how do you actually use property data to compare properties and come up with a value based on your comps?
Some of the most common ways to compare properties are by:
Sales price comparison
What was the sales price of the 3 closest, most recent, and most comparable sales?
Price per square foot
What is the average price per square foot of comparable home sales?
Replacement cost
How much would it take to rebuild this property today?
Tax assessed value
How much does the county property appraiser’s office assess this home as being worth? Note that this number can be close or very different from current sales prices and market values depending on how recently they assessed properties, property specific exemptions, what is the norm for the area, and the speed at which prices are changing.
In most cases residential real estate investors will be focusing on sales comparison. That means basing your value off of how much similar nearby properties have sold for. And in some cases what they haven’t sold for.
The goal is to look at the most comparable properties to the one you are evaluating, and to assign it a value based on what those units sold for.
For example; if three identical neighboring homes just sold for $300,000 you would assume yours is also worth $300,000.
The catch is that rarely do we have 3 or 4 identical homes selling at the same time. Perhaps with the exception of new construction developments.
So we compare comps by looking at the most important and valuable features:
Number of bedrooms
How many bedrooms does the property have? How many bedrooms is normal for the neighborhood? Make sure to check the local official definition of a bedroom. For example; does it have a closet?
<h4?Number of bathrooms
How many full and half bathrooms does it have?
Size
How many square feet is the total lot, total structure, and amount of living area under AC?
Views
Is there a water view, beach view, or no view?
Garage Spaces
How many garage spaces are there? Are they attached to the home or detached in a separate building?
Location
How does the location compare to other properties? Waterfront, beachfront, deep water dockage, corner lots, busy roads or cul-de-sacs, and more are things to consider.
The community
There can be stark differences between the amenities and prestige of communities and buildings.
Other costs
If one property has higher costs versus others it can impact appeal and value. For example; HOA fees and condo dues, special assessments, property taxes, and utilities.
Swimming pools
Does the property have a community or individual swimming pool?
The condition of the property
Is this property in a distressed condition? Is it new? How many years of functional life does the home and major elements such as roofs have left?
How much units are rented for
How much is the actual rent for existing tenants? How much are local area rents?
Time and proximity are also critical factors to weigh when evaluating comps. Ideally your comps will have sold within the last 6 months, and will be no more than 1 mile from the subject property.
Additional factors can include the price at which comparable properties failed to sell, are pending at, and factors which influenced those prices. For example; if local comparable property listings are expiring at a certain price point that is probably the current ceiling of what buyers are willing to pay. Pending transactions may be used to support your value estimate, but they don’t really count until they are closed. Also consider if recent transaction figures have been brought down by distress situations or pumped up due to seller incentives.
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