What Are Real Estate Comps for Real Estate Investors?

Real estate comps are properties that are comparable to the property you are considering purchasing. They give you a realistic look at the market value of a home.

These days, you can locate real estate comps to find the value of a home yourself through online research, an investor-friendly real estate agent, or a licensed appraiser.

Read on to learn more about real estate comps and how they can be a useful tool for you and your business.

What Are Real Estate Comps?

“Real estate comps” refers to “comparables.” In other words, you’re comparing similar properties to determine fair market value.

Real estate comps are also known as “comparative market analysis,” which can be shortened to “CMA.”

Simply put, real estate comps are houses that have sold recently (generally within the last six months) and are similar to a property you are considering for investment.

Here are the most important real estate comps to compare:

Location: Compare properties within a three-mile radius. Stay within the neighborhood or regional boundaries for real estate comps.

Square footage: Look at properties with similar square footage size — plus or minus 10% but ideally as close as possible.
Style: Compare properties of similar build: two-story, ranch style (one floor), multi-level, etc.

Year Built: Ideally, look to compare properties within five years of the same construction date. If this isn’t possible then at least aim for properties built within the same decade. Don’t compare a house built in 1900 to one built in 1999.

Bedrooms: Even with similar square footage, a property with five bedrooms will not sell for the same price as a one-bedroom property. Compare properties with the same number of bedrooms.

Baths: Always compare properties with the same number of full and half baths.

Land: Compare properties with similar plot sizes. A house on a city plot shouldn’t be compared to a house on ten acres in the country.

Timeframe of when it last sold: Here you’re looking for properties that sold, ideally, within the last three months. It’s a good idea to confirm how long properties were on the market before sale to choose real estate comps sold in an active market.

Price per square foot: For your final comp calculation, you’ll want to find at least three to five real estate comps that fit the above categories. The average price per square foot of the comps will be the average fair market value for a comparable property.

All of these real estate comps provide insight into market value. It is a starting point to determine selling, buying, or rental prices.

Real estate investors use the knowledge from comps to determine their offer price based on desired return on investment (ROI) and taking into account their real estate strategy.

Using Real Estate Comps for Your Initial Investing Strategy

As always with real estate investing, it’s important to focus on your strategy and how real estate comps can work for you to find the best investing opportunities.

Before you start scouting properties and contacting sellers or realtors, it’s good to focus on the type of real estate investing you’ll pursue.

Knowing your strategy will help you stay in line with the research, due diligence, and conversations needed. Keeping your goal in perspective will save you valuable time and effort.

Here’s the focus strategy with real estate comps in different types of real estate investing:

Wholesaling

In wholesaling it’s essential to know the fair market value of the home to determine purchase and wholesale price. Without pulling the real estate comps, you’re guessing what the property could sell for at fair market value.

Knowing the comps in wholesaling is essential because it allows another investor to calculate potential profits and determine if they want to trade places and take on the purchase and sale agreement. Real estate comps will also help you to determine the assignment fee for the wholesaling transaction.

House Flipping

In house flipping, you’ll want to look at the real estate comps not only for the property in its current condition but also for the condition after renovation.

Knowing the value of the house in its current condition will help you make an informed under-market value offer. Knowing what comparable houses have sold for after updates will help you determine if there is potential to resell the property at a higher price.

With the current price, the expected final sale price, and the cost of renovation, you can accurately estimate your return on investment (ROI) in house flipping.

Buying and Selling Rental Property

When buying rental property, real estate comps will help determine a good purchase price to make money upfront. When selling a rental property, real estate comps will give you an idea of what you can expect as a fair market price.

It’s also important to know the value of other similar rental properties to determine what you’ll charge in rent and to share this value with interested buyers. You’ll want to research what updates were done that may have helped sell a similar rental property or increased the monthly rental income.

When managing rental properties, it is worthwhile to regularly compare real estate comps to keep your rent price and amenities with market values.

How to Find the Most Accurate Real Estate Comps

Now that you know how to use real estate comps, it’s time to get reliable information on comps. The best way to do this is through the local multiple listing service (MLS). You can ask an investor-friendly real estate agent to help you search the MLS.

MLS

The MLS is a fast and easy way to quickly get an accurate estimate of fair market value for a property.

The MLS has the most up-to-date information on listed properties. Real estate agents have to keep their listings up to date or face penalties, making it an excellent resource to research real estate comps.

The MLS provides information on each property, seller concessions (such as agreeing to pay closing costs), type of financing, days on market, status changes (such as an offer acceptance and date of close), and all the other comps mentioned above.

Real estate agents can quickly pull up properties that are similar to a property you may want to buy and determine the fair market value. You’ll get everything you need to compare comps.

The MLS will also provide a property tax ID number which can be used to locate public records of the owner, their contact information, tax history, etc.

One point of caution: Real estate comps provided by a real estate agent are used to help you determine an estimated fair market value. Real estate agents are not professional appraisers, although they usually know their markets quite well. Therefore these comps and the estimated fair market value should only be considered just that— an educated estimate.

Finding Real Estate Comps Without the MLS

Even without the MLS, there are both free and paid options to get an estimate of home value including websites like Zillow, Trulia, and Realtor.com, as well as a professional appraisal. Here are the pros and cons of each:

Listing Websites Pros and Cons

The benefit of online listing websites is that they are easily accessible and mostly free to use. They often feature snapshots of a potential neighborhood, providing information on schools, property values, taxes, past sale prices, current listings, and more.

The downside to these online listing sites is that they are not always up to date.

To mitigate misinformation, you can verify what you find online with a local investor-friendly real estate agent. You can also visit more than one real estate website to compare information. Additionally, consider reviewing public tax records or a register of deeds.

Real Estate Appraiser

For the most accurate and reliable estimate of the current property value, you can hire a real estate appraiser.

What Is a Real Estate Appraiser?

A real estate appraiser is licensed by their state to provide a professional opinion of fair market value. They primarily use the MLS, public records, and their own proprietary tools to determine value. Banks use appraisers to confirm the property value prior to giving a loan to a buyer.

Appraisers will generally charge a flat fee from $400 or more, depending on the service required. The main advantage of paying for an appraiser is that they give a licensed professional opinion that is highly regarded as the most accurate assessment of value.

Conclusion

Real estate comps put the power into the hands of the investor to learn market trends and compare similar properties when assessing deals. Learning to locate and compare real estate comps is a foundational skill for successful real estate investing.

To learn more, be sure to check out our articles on real comps specifically related to wholesaling, house flipping, and rental properties!

Frequently Asked Questions

House comps are calculated by comparing three or more properties in the same area that are similar in square footage, year built, style, number of bedrooms and bathrooms, and land size. Real estate investors will then calculate the price per square foot to get an educated estimate of house value for the area.

Home value can be influenced by what other properties have sold for.

In addition to square footage, the number of bedrooms and bathrooms, and land size, buyers will weigh features like school district, the desirability of neighborhoods, proximity to large metropolitan areas, safety, and charm of both the property and the area.

Appraisers look at the condition of the house, its size, and its location. They look at structural integrity including foundation, roof, exterior walls, floors, interior walls, trim, plumbing, etc. Appraisers will look at the condition of the house compared to their standards and similar properties. If you’re looking to make improvements to a property, visit our guide to identifying improvements for house flipping.