A large number of property investors, both new and experienced alike, want to learn more about how to locate real estate comps. This aspect of real estate investing is shrouded in mystery to a certain extent, however it is not difficult to do as long as you follow a proven process. The information below should give you a big headstart, as far as pulling comps goes.
Comparable Properties in Focus
You need to know which factors to consider, when looking for comparable properties. Essentially, this process centers around comparing eggs with eggs. For instance, you should ensure that your comparable homes are situated as near to the subject home as possible. Ideally, you should avoid extending your search parameters beyond half a mile from the subject home.
Also, you need to check that the subject home has similar features to the comparable homes. Remember that, once the rehab is finished, the subject home amenities might be different. Let’s say, for example, that you are beginning with a subject home that has two bedrooms and one bath — however, following the rehab, you are aware that the property will have three bedrooms and two baths. In this situation, your comps should be three/twos, instead of two/ones.
When it comes to style, you should ensure that the homes you compare share similarities in this respect. All the comparable homes you look at should be roughly the same size as your subject home. If you are unaware of the exact measurements of the subject home, you could just opt for comparable homes that seem to be about the same size. Suffice to say, if you have a bungalow, the comparable homes you look at should have this characteristic too.
Educating Your Real Estate Agent
As a top priority, you will need to educate the real estate agent you use to provide you with what you require. Bear in mind that these professionals might not fully understand your thought processes as an investor, because they will not have been taught this when they learned their job. Therefore, do not assume that a real estate agent will know what you require to simplify your decisions, when buying real estate and pulling comps. By taking a small amount of time initially, to teach your real estate agent the ins and outs of pulling comps, your level of stress will be significantly lowered.
Lots of people regard comps as the equivalent of reading Tarot cards. Make no mistake though, this is a complete myth. It takes certified appraisers many years to learn how to value properties accurately. We do not have the time to master this skill. Moreover, we do not have the budget to hire a certified appraiser each time we want to assess comps for properties we want to buy. Therefore, we require a way to pull comps that is suitable for laymen, but still effective nonetheless.
A Real Estate Comp Example
One property that I have shortlisted for purchase is situated on Harford Rd in Parkville, MD. This all brick bungalow has an unfinished basement and dormer attic. With 1.5 baths and three bedrooms, it is typical for the area. The property will have three full baths and four bedrooms, once the rehab is finished.
There are just a few factors to take into account when searching. These are: the type, the status and the date for closing. Next, I have to decide on the criteria for location, or the search boundaries. I opt to make the boundaries for my search fairly tight. As mentioned earlier, it is far better if the comps are as near to the subject home as possible. Notwithstanding, this might be impractical if you are attempting to comp a rural property. For homes in these sorts of areas, you will need to use wider boundaries.
Please note, it is best to avoid using Competitive Market Analysis (CMA). This is a written document, which compares your subject home to every comp chosen by the real estate agent. These documents are of no use to us, because they normally feature one photo of the house and tend not to include comments from the listing agent. These comments are vital, and the photos reveal more than any written description can. Good photos allow you to accurately gauge a property’s condition. Photos show whether your comp is smartly updated, recently rehabbed or never been upgraded. In contrast, CMAs merely display numerical information, and comping homes requires much more data than that. Therefore, instruct your real estate agent not to bother with CMAs.
In any event, the subject home in our example is a main drag property. It is right to be concerned about homes in busy areas. If you intend to rehab a home in a busy area, ensure that it is in a desirable neighborhood. Also, you should check that every comp you pull is on a main drag as well.
Once I researched some suitable comps in the area, I narrowed it down to four options. Unlike real estate agents, I did not choose twenty homes (quality over quantity). Moreover, I was careful to choose some homes in busy areas, even if they were not recently rehabbed properties. This is fine, because my subject home will be wonderfully rehabbed. Naturally, if these ‘mediocre’ homes in busy areas can attract buyers, my wonderfully rehabbed home should have no problem.
Don’t forget, while assessing comps, there are just five factors to consider. These are the size, the style, the location, the amenities and the condition. In the end, I chose a white property in Old Harford. This property is situated just a block from the subject home. Furthermore, it is in ‘average, lived in’ condition. Within forty-five days, it was under contract with an asking price of $229,000. I’m sure that my subject home, situated nearby — although less spacious, will command a minimum of $229,000 in its’ wonderfully rehabbed and new condition.
Hopefully, this article has shed some light on comps and how you can profit from them.