You already know what a comparable is, but just in case you don’t, a comparable is a tool used to figure out the actual market value of a home or other property. There are many elements to completing a successful and accurate comparable and even more ways they are useful in the real estate industry, specifically real estate investing.
You may have sold or purchased an investment property recently and used a comp to help you determine your offer or asking price. Maybe you’re considering property for a vacation home or a new office space. In almost every property transaction, comparables provide benefits to all parties, if in different ways.
Unless you’re a real estate Agent or appraiser, however, you probably aren’t familiar with how a comparable is calculated. Several factors play a role in calculating comparables, and most of them require a professional to determine their values. Here’s a quick list of some of the most important of them, whether you’re buying, selling, or just curious about what your property is worth.
The absolute essentials of any comparable are easily boiled down to four main points and a few accompanying questions:
Financial State of Property
- Is the property free and clear?
- Is it owner-financed?
- Is it in foreclosure or subject to lien?
- How does the property measure up to surrounding homes and other buildings?
- Is the property an eyesore in an otherwise visually appealing area?
- Is it the best house on the block?
- What is the age of the structure?
- How big is the structure and what is the price per square foot?
- Are the foundation and other structural elements sound?
Real Estate Market Conditions
- What are other homes in the area selling for?
- Is the market active or stagnant?
- Is your asking, or offer, price too high? Too Low?
Properly Investigating and answering these questions allows a real estate Agent, appraiser, or county official to accurately determine a home’s market value. Most Agents are familiar with creating a CMA, or comparative market analysis. This useful tool is often one of the single most important factors for Investors when finalizing the price on a contract. Using this opinion of value is key to ensuring all parties to a financial real estate transaction benefit as planned.