In any industry, knowing what your product is worth is a major determinant in your price. This also applies to the buyer’s estimated value of the product. Asking for a high price that does not meet a customer’s expectation can push away customers. When it comes to real estate, establishing market value is the engine that pulls real estate comps together. Real estate comps are important to determine the actual selling price; they focus mainly on the actual price of properties. When real estate investors apply their knowledge to find real estate comps, it helps them determine what properties should be sold and bought for compared to similar properties. This also helps property investors determine the best income properties to include within their portfolio.
So, what are real estate comparables?
Real estate comps consist of multiple factors. It is an appraisal term used to refer to properties that are similar to a specific property (usually the property that the buyer or seller is interested in). The main goal of real estate comparables is to establish market value of the property in question compared to what other similar properties have sold for in the market.
How to find real estate comps
Getting a home appraisal determines the market value of your property. In order to find real estate comps, a home appraiser will take location, condition of the home, and other factors into consideration to determine the value of the home. The only issue that comes up when using home appraisals to find real estate comps is the cost. At average, a home appraisal will set you back $300-$500 for single-family homes and the price will increase along with the size of the property.
Manual comparative market analysis
If you’re willing to exert some effort, you can conduct a comparative market analysis manually and save yourself a few hundred bucks along the way. To do so, you must review the neighborhood of the property and how much each property has sold for while factoring in the finishing and square footage. This will give you an idea of what value to expect.
To simplify, assume that you found a similar property in the neighborhood that has 1000 square footage. Meanwhile, the property you are looking at is 1200 square feet. You will need to calculate how much each square foot adds to the value of your home while factoring in the finishing and location. A comparative market analysis must be paired with an investment property analysis in order to be valid. An investment property analysis encompasses many metrics that determine the value of the property as an investment property. Such metrics include return on investment, cash on cash return, and capitalization rate. Such figures can be calculated manually with good accuracy.
Combining the comparative market analysis and the investment property analysis will set you on the path to conducting a complete real estate analysis, which will help you to find real estate comps for any said property. Keep in mind that time is an important factor when it comes to the selling properties you are comparing.
Utilize technology to conduct an investment property analysis
Conducting a comparative market analysis and an investment property analysis online is possible. Thanks to technology, a process that could take from days to weeks can be done within minutes while in the comfort of your own home. Mashvisor offers an encompassing service that offers both an investment property analysis and a rental property calculator. This can help you in analyzing any property through real estate metrics and comps with high accuracy to allow you to make proper decisions and find the best real estate investments around.
What you need to know when you find real estate comps
Location is key
Location is the key to make a profitable investment. Looking at the neighborhood of the property can tell you a lot about your property. Location affects property prices as different areas offer different qualities. A real estate investor must factor in the location of a property in order to properly find real estate comps.
Timing reflects on accuracy
This indicates staying current when you’re trying to find real estate comps, meaning that you don’t use data older than six months as it does not give the right indication about the current market values. The best data you can use is mainly derived for properties that recently sold or are pending.
Property features matter
Property features should be taken into consideration to find real estate comps. The views, luxury features, and even a finished basement affect the price. This also includes any renovations that the owners did on the property, such as a kitchen renovation or even a bathroom update. Properties with such upgrades and renovations will be valued higher than those without. Such features matter especially for investors interested in rental properties as having renovations will increase the rental income generated by the property.
Land size matters
To find real estate comps, the lot size must be reflected in the property’s market value; a property with 2 acres will have more value than another with 1 acre of land. Additionally, the ability to use the land in each lot can affect the price tremendously.
To effectively find real estate comps, the real estate investor must factor in all aspects and features of the property to determine its value compared to others that are similar. At the end of the day, real estate investors are constantly looking for opportunities to keep making money in real estate, and so it’s the real estate comps duty to make sure you are getting your money’s worth. If you have more insights regarding real estate comps, please share them with us in the comments section to help others make profitable investments in real estate.
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