Any real estate investor needs to know how to perform a comparative market analysis (CMA). This is a real estate market analysis which serves as a tool for determining the market value of a real estate property. The basis for this analysis is real estate comparables, or real estate comps for short.
How Do We Use Real Estate Comps?
To perform proper CMA, you have to do a lot of hard work. First of all, you have to do property analysis of the home whose value you want to determine. Then you need to identify 3 comparable recently sold properties in the same area. Now, this raises a few important questions?
- What does “comparable” mean?
- What does “recently” mean?
- What does “same area” mean?
In order to get accurate real estate comps, you have to choose properties which are as similar to your property as possible. This holds true in terms of: kind of property (single-family home, townhouse, condo, etc.), land area, square footage, number of floors, numbers of bedrooms, age, amenities, and other major features (a swimming pool, a fireplace, balconies, verandas, a garden, etc.). When it comes to recent real estate comps, most real estate experts agree on sales in the past 3 months to be recent, but it all depends on the dynamics of the specific market. “Same area” would usually refer to properties within a radius of 1 to 3 miles from your target property, but you should make sure that there are no major differences within this radius. You should remember that the more similar and the closer your examples are to your actual property, the more correct your real estate comps will be.
In your CMA, you should also look at pending listings as well as expired listings. The most probable reason for an expired listing would be that it is overpriced, so the price its owners are asking for will give you a good idea of what’s too much to ask for in your neighborhood.
Once you’ve collected all real estate comps, you will need to set a floor price and a ceiling price, which will give you a price range. Finally, you will have to compare your property very carefully to the comparable properties you have selected and decide how much better or worse than them your property is. This will allow you to choose the right market value of your home within the price range that you have previously set.
Why Are Real Estate Comps Difficult to Obtain?
Well, the answer to this question seems quite obvious. Obtaining the accurate real estate comps in your real estate market analysis consumes a lot of time and efforts, and in real estate investing time is money. Instead of wasting your time on looking for real estate comps, you could be thinking of ways how to improve your investment strategy or how to increase the number of your income properties or any other thing that will make your real estate business more profitable.
So, what can you do to avoid having to look for real estate comps?
Hiring a Real Estate Appraiser
The traditional answer to the question above is by hiring a professional real estate appraiser. This is an authorized individual specializing in valuating real estate properties, and he/she will be able to tell you exactly how much your home’s value is at the market at the moment. But as you can imagine, getting an appraisal costs money. If you had no other option, maybe paying for an appraiser would be worth it because you would get an accurate market value without spending days on looking for real estate comps. However, in the current world of technology, an appraiser is not the only option.
So, what other ways can you find real estate comps other than by consulting an appraiser?
Instead of spending days on collecting real estate comps or giving hundreds of dollars for an appraisal, you can simply use Mashvisor. So, how can Mashvisor save us time and money when searching for real estate comps?
At the Neighborhood Level
It’s impossible to overstress the importance of location in real estate investing. Once you’ve decided your preferred city for your next investment property – whether in or out-of-state real estate investing – you have to choose the best neighborhood in this city. Well, now imagine if you have to find real estate comps in several neighborhoods within a city to decide which one would be the best for you. This will be so complicated! But you don’t have to do that because Mashvisor will provide you with all crucial numbers for all major neighborhoods in the available cities including cash on cash (CoC) return, capitalization (cap) rate, and Airbnb occupancy rate as well as real estate comps for this particular neighborhood. You can narrow down your search by filtering the number of bedrooms, number of bathrooms, age, square footage, and your budget to get a detailed understanding of the neighborhood real estate comps.
At the Property Level
After you’ve selected your neighborhood and go into specific properties, Mashvisor will once again be of indispensable help. You will not have to go around and search for real estate comps. Instead, Mashvisor will show you the expected rental income, CoC return, cap rate, occupancy rate, and costs associated with this property without the need for complicated real estate comps. All Mashvisor figures are based on comparative analysis and on actual data from nearby properties, so they are highly reliable. Moreover, Mashvisor will offer you a list of other similar properties in the same area and their figures for looking at real estate comps on your own.
Traditional and Airbnb Real Estate Comps
Last but not least, Mashvisor will provide you at both the neighborhood and property levels with both traditional and Airbnb real estate comps. The traditional and Airbnb rental strategies yield widely different results, so Mashvisor will save you lots and lots of time by supplying you with both sets of real estate comps to decide which strategy is the best for your specific case.
In conclusion, while it is still highly advisable for any real estate investor to be able to perform CMA on his/her own, looking for real estate comps takes a lot of time and efforts. Thus, when looking for your next rental property, you should use Mashvisor’s investment property calculator which will eliminate the need to search for real estate comps by yourself.