What Makes Up a Comparable Sale?
Comparable sales are the sales prices of similar homes that have sold.
Who do you think cares more about comparable sales? Home buyers or home sellers? Are comparable sales more important to a home seller or do home buyers place a higher level of importance on comparable sales?
I believe the answer is home sellers. But it shouldn’t be. It should be home buyers as well. Today most savvy buyers will request to see comparable sales. Recently sales information has become more readily available do in part to Realtors like myself posting up to date pages showing only recent home sales. For instance my page “Recent Solds”. In the past this information was not readily available to a buyer . Buyers had to and some still do rely on their Realtor to show them the recent comparables. When a home buyer tours homes, that buyer is comparing homes for sale with other homes for sale. The only thing a buyer knows is how much the seller down the street is asking for a similar floor plan.
The question still remains how do you find accurate sales comparables?
Here are the main components of a comparable sale:
- Recent time frame of sale. Many years ago, appraisers used to go back 6 months in the public records to pull comparable sales. Since the 2007 sub-prime mortgage meltdown, that time frame has considerably tightened. Nowadays, appraisers generally use only the last 3 months of comparable sales. You may want to use a comparable sale from two years ago when the market was high, but that won’t fly. Most buyers use government-guaranteed mortgages, and those lending programs say comparable sales can be no older than 90 days.
- Close proximity. Ideally, a researcher would consider sold statistics within a certain radius, typically within a ¼ to ½ mile of the subject property. The closer the better. Remember the adage:location, location, location. A home that fronts a busy street would be worth less than a home facing a lake. The closer to your house the better, but don’t just use any comparable sale within a mile radius. A good comparable sale is a house in your neighborhood, your subdivision, on the same type of street as your house, and in your school district.
- Similar square footage. You can’t take the price of a 1,000 square-foot-home and double it to determine the value of a 2,000 square-foot-home. That’s because the per-square-foot cost of smaller homes is higher than the per-square-foot cost of a larger home. Ideally, you want to compare homes within 10% of your subject property’s square footage.
- Similar age and construction. You will hear people say: They don’t build homes like they used to.But it doesn’t necessarily mean older homes are better than newer homes. The values, however, are different because of character and appeal. A tile roof, for example, can enjoy a 50-year life over the 25- to 30-year life of a standard composition shingle.
- Similar lot size. In some newer home tracts, you might find a mix of lot sizes. For example, a zero-lot line means the home really doesn’t have a yard. The side or back yard might be very small without grass or vegetation, which typically do not appeal to families with children. Many areas compute lot size based on actual square footage divided into 43,560 square feet. An acre is 43,560 square feet. A quarter of an acre, or 10,890 square feet is .25 of an acre.
- Similar condition. Unless you are working with a neighborhood specialist who has intimate knowledge of the condition of most of the homes in a specific area, it can be hard to determine the condition of a comparable sale. A stripped foreclosure home owned by the bank, which is missing its appliances and copper plumbing, is worth much less than a turn-key home, updated with new appliances, carpeting and paint.
- Amenities and upgrades: Is the kitchen new? Does the comparable sale house have full A/C? Is there crown molding, a deck, or a pool? Does your community have the same amenities (pool, workout room, walking trails, etc.) and homeowners association fees?
- Sales sweeteners: Did the comparable-sale sellers give the buyers downpayment assistance, closing costs, or a free television? You have to reduce the value of any comparable sale to account for any deal sweeteners.
Knowing how much homes similar to yours, called comparable sales (or in real estate lingo, comps), sold for gives you the best idea of the current estimated value of your home. The trick is finding sales that closely match yours. How much can you sell your home for? Probably about as much as the neighbors got, as long as the neighbors sold their house in recent memory and their home was just like your home.
More ways to pick a home listing price
If you’re still having trouble picking out a listing price for your home, look at the current competition. Ask your real estate agent to be honest about your home and the other homes on the market (and then listen to her without taking the criticism personally).
Next, put your comparable sales into two piles: more expensive and less expensive. What makes your home more valuable than the cheaper comparable sales and less valuable than the pricier comparable sales?
Are foreclosures and short sales comparables?
If one or more of your comparable sales was a foreclosed home or a short sale (a home that sold for less money than the owners owed on the mortgage), ask your real estate agent how to treat those comps.
A foreclosed home is usually in poor condition because owners who can’t pay their mortgage can’t afford to pay for upkeep. Your home is in great shape, so the foreclosure should be priced lower than your home.
Short sales are typically in good condition, although they are still distressed sales. The owners usually have to sell because they’re divorcing, or their employer is relocating them.
So you have to rely on your real estate agent’s knowledge of the local market to use a short sale as a comparable sale.
Al of the above are great tips for both buyers and sellers. In the end using a qualified local Realtor will allow you to realize the best possible terms.
Robbyn Battles selling real estate in the Foothills of La Canada-Flintridge, La Crescenta, Montrose, Sunland-Tujunga, Shadow Hills, Altadena, and all the surrounding neighborhoods for over 30 years.
Robbyn Battles • Battles Real Estate • JohnHart Real Estate • “Real Estate Redefined” 1420 Foothill Blvd. La Canada-Flintridge CA 91011, 818-388-1631