Comparables

What Are Comparables?

Comparables (comps) are used in valuations where a recently sold asset is used to determine the value of a similar asset. Comparables, often used in real estate to find the fair value of a home, are a list of recent asset sales that reflect the characteristics of the asset an owner is looking to sell. However, the list of sales is generally limited to within the last year. 

Understanding Comparables

Using comparables for valuation is helpful for accurately appraising any asset. For example, a real estate agent may appraise the value of a home-based on the most recent selling price of a house in the same neighborhood with similar attributes, such as square footage and the number of bedrooms and bathrooms.

Comparables are frequently used for real estate agents. The agents use comparable homes that are located within about a one-mile radius from the property they are evaluating. The comparable that is being used is typically sold no longer than a year ago to date. It is normal to attempt to use around three comparables to accurately get the appropriate asking price.

A minimum of three comparables must be reported in the sales comparison approach.

Special Considerations 

The best practice to use comps is during a for sale by owner (FSBO) situation. Realtors have more tools and resources to accurately evaluate the price of the home. An FSBO is perfect for sellers who are not using a realtor. The seller is able to gather data from the nearby neighborhoods on comparable homes, and then proceed to list the home price accurately.

Buying and selling a home use to be done very simply, but involved a heavy amount of negotiating. With access to many different real estate listing websites, it can be very easy to do a comparable search while sitting at home in pajamas. It does not require to do much research or data gathering, but just a few minutes looking for a 3000 sq. ft. home with 4 bedrooms and 3 bathrooms. 

It can easily be searched on one of the listing websites, but more data can be gathered by looking at multiple. The more information that is gathered, the more accurately the comparable home price will be. It will pay off to do all the research possible.

Example of Comparables 

For example, Bert wants to sell his house. He notices that a similar house in the neighborhood has just recently sold. He does a little investigating and finds the price that it was sold for. He now has an idea of how much his property is worth.

He enlists the help of Steve who is a realtor. After taking a walk-through of the house, Steve pulls comparables for the last 12 months for houses similar to Bert's in his neighborhood. These comparables are used to determine the list price for Bert's house.