Using Comps To Arrive At An Offer Price
Posted on: 22 October 2019
Homes on the market are offered at an asking price, but you may not necessarily end up paying that price. You might pay a bit less, or you might even pay more than the asking price. The price of the home is supposed to be based on something called "comps", short for comparable home price sales. Sellers, though, may overprice their home with the expectation that someone will pay their asking price. Some sellers don't use comps at all. For-sale-by-owner (FSBO) homes can be overpriced due to sellers setting prices based on their needs or expectations. Read on to find out how comps are arrived at.
What Are Comps Based On?
Comps are about the sales prices of homes sold recently. The date used should be fresh and accurate so you can understand how the owner arrives at the asking price and how to set an offer price that will be accepted. You can justify an offer by pointing out why you and your real estate agent arrived at a given figure by pointing to the comps evaluated. In most cases, your real estate agent is the expert on comps. They have access to the data needed and the expertise to advise you on your offers. It's your money, though, and you should at least understand the process in general. Comps are good at giving buyers (and sellers) a price range rather than exact prices, since two homes are seldom perfectly identical in every aspect. Comps, then, are based on:
- Size – Square footage means a lot in real estate sales prices. You cannot easily compare homes that are not even close to the same size. Lot size or acreage must also be considered, but square footage is most important.
- Location – When reviewing other homes, location makes all the difference. Home in certain areas of town, in certain neighborhoods, and in certain school districts command widely variable prices. The comp on a home in regard to location should be as close as possible geographically and in the same general, well-defined area.
- Upgrades – It's common for sellers to redo their kitchens or make other changes to their home before it hits the market. This affects comps, too. When homes are very similar in size and location, the upgrades can swing the comp price considerably.
- Recent sales – The word "recent" in this context usually means within the last six or so months. Market conditions can fluctuate, and the more recent the comp, the more accurately it reflects market prices.
Other considerations when performing comps include the number of bedrooms, the view, and the lot layouts. For example, a home a block from the beach is more valuable than one several blocks away. To find out more about comps and how they affect your offer price on a single family home, speak to a real estate agent.
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