WHAT THE HECK ARE COMPARABLES?
I'm writing this article to help you understand the power of good and bad comparables.
But, first, you ask...."What the heck are comparables?" I'm glad you asked.
Comparables (also known as "comps") are, according to Wikipedia, "properties with characteristics that are similar to a subject property whose value is being sought." In latent terms, comps are those homes that have recently sold or are under contract, usually within your subdivision or within a one mile radius, that are around the same size and same age. So, that foreclosure down that street that sold 5 months ago...yup, that's a comp. That home that was sold to a family member for half it's worth? Yup, that's a comp.
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WHY ARE COMPARABLES SO IMPORTANT?
So, why are comparables so important when it comes to pricing and selling your home?
Another good question. Glad you asked again.
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Comps affect how your listing agent prices your home, the offers coming in and, ultimately, the price that it sells for.
HOW COMPS AFFECT THE LIST PRICE OF YOUR HOMEYour Realtor will come in and look at the condition of your home, make notes of any upgrades/renovations. Then, pull comps. Ultimately, these comps will be the basis of her recommended sales price. This is how it affects the list price.
When a buyer's agent puts together an offer, the first thing she's going to do is check her local MLS for comps. She will pull listings of homes in the same neighborhood or school district that are around the same size and age that have sold or are pending sale (under contract) in the past 6 months. If only a few comps come up, then she'll pull them from the last year. Then, she'll show them to her buyers and they'll come up with, what they think, is a fair offer.
HOW COMPS AFFECT THE SALES PRICE OF YOUR HOMEOnce an offer comes in that you think is fair, unless the buyer is putting down a very large amount of cash, the property must appraise for the loan amount. So, if the home is sold for $250k, the buyers are going FHA and putting down around 9k...then, the home MUST appraise for $241k. If it doesn't, then, the buyers have an option to pull out of the deal or request the seller lower the price to the appraisal value. When it comes to an appraisal of a home, the appraiser bases the majority of his valuation on the comps. The comps either make or break the appraisal value.
WHAT MAKES A COMP GOOD OR BAD?
A "Good" comp will be all of the following:
1. A Similar property to your home. Similar size (square footage), same parking description (garage vs carport). Things of that nature.
2. Located in the same general area. Comps should all be pulled from the same neighborhood, zip code and school district. All comps should be within a one-mile radius of your home.
3. Age/Condition is similar.
4. Style is similar. Especially in GA, house styles vary a whole bunch. So, I find it's hard to compare a Cape Cod to a Contemporary styled home.
5. Sold Recently. The best comps are homes sold or under contract within the past six months.
6. Normal/Standard Sale. Not a short sale or foreclosure.
So, everything NOT on that list would be considered a "bad' comp. Especially if the home was a foreclosure or short sale. This will bring the value of the comp down significantly. Most appraisers will take this into consideration. But, that bank-owned home will still be considered a comp.
I know I've said this before, but, I cannot stress enough the importance of having an appraisal done on your home prior to listing it. Especially if your home is not located in a subdivision. When you do decide to list your home, make sure your Realtor shows and explains all of the comps she pulled.
In the meantime, fill out the form below and I'll send you a customized home valuation report.
