When you’re buying or selling a home, understanding its value is crucial. Real estate agents use a method called “comps” to help determine a property’s value. In this guide, we’ll dive into what comps are and how they’re used when a real estate agent determines your home’s value.
What is a Comp When a Real Estate Agent Determines Your Home’s Value?
This guide explains the following:
- What is a comp?
- How agents find comps
- Why comps are important
- Factors affecting comps
- Limitations of comps
- FAQ about comps
Here’s a closer look at each.
What is a Comp?
A comp, short for “comparable sale,” is a recently sold property that’s similar to the one being bought or sold in terms of size, location, age, and condition. Real estate agents use comps to establish a property’s market value, helping buyers and sellers negotiate a fair price.
How Agents Find Comps
Real estate agents typically find comps using the Multiple Listing Service (MLS), a database of properties for sale and recently sold in a given area. Agents search for homes that have sold within the last six months and are similar to the subject property. They’ll typically look for homes within a specific radius, ideally within the same neighborhood or area, to ensure a relevant comparison.
Why Comps are Important
Comps are crucial for several reasons. For sellers, they provide a benchmark to help set a realistic asking price. For buyers, comps offer a reference point to make informed offers and avoid overpaying. Additionally, lenders rely on comps during the appraisal process to ensure they’re not lending more than the property’s value, minimizing their risk.
Factors Affecting Comps
Several factors can impact the relevance and accuracy of comps, including:
- Location: The closer the comp is to the subject property, the better the comparison. Different neighborhoods can have vastly different market conditions.
- Property features: The more similar the features, such as square footage, number of bedrooms and bathrooms, and lot size, the better the comparison.
- Age and condition: Comparing a newly built home to an older one in need of repairs can lead to inaccurate valuations. Agents look for comps with similar age and condition.
- Date of sale: Market conditions can change quickly, so agents prioritize comps sold within the last six months.
Limitations of Comps
While comps are a valuable tool for determining a home’s value, they have limitations. They may not accurately capture unique features or upgrades that can increase a property’s value. Additionally, a lack of recent, relevant comps in the area can make it challenging for agents to establish an accurate market value.
FAQ About Comps
Check out these commonly asked questions about comps. If you don’t see the answers here, please call our office and we’ll get you the information you need.
How many comps do agents use?
Agents generally use at least three comps to establish a property’s value. This helps to account for any outliers or unique circumstances.
What if there aren’t enough comps?
If there aren’t enough relevant comps, agents may need to expand their search or use other valuation methods, such as cost-based or income-based approaches.
Can I find comps on my own?
While you can search for comps using public records or online real estate websites, working with a real estate agent ensures access to the most accurate and up-to-date information from the MLS.
Understanding comps and how they influence your home’s value can make a significant difference in your real estate journey. With the help of an experienced real estate agent, you’ll be better equipped to navigate the process and make informed decisions about your home purchase or sale.
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