Comps don’t work is a true statement. Whether you are buying a home or selling a home one thing is for sure: Eventually a bubbly Realtor will hand you a stack of comps. Why? Because that’s what agents are trained to do.
I guess if they trained us to give you lollipops you’d get a lot of those too. Oh well.
What’s A Comp Anyway?
A comp is a comparable property. Almost always sales are used but homes for sale and homes under contract are also comps. The idea is to correctly establish a home’s value so a buyer or seller won’t make a mistake.
Sold Homes – The King of Comps
Sold homes are the King of Comps. Recent sales are thrown at homeowners and buyers to explain value. This does seem to make sense, doesn’t it? After all, if a recent sale is like 1 Main St, then 1 Main St must be worth the same amount. Sometimes yes and many times no.
Comparable sales should be similar in style, location and condition. However 1 very important item is missing which can get you into trouble. What’s missing is timing.
Today is May 29th. Is a sale from December a good comparable? I bet you would agree it is not. Look at this hypothetical:
A home closes today. It found a buyer on December 12th and went under contract on January 3rd. Would you use this as a good comp for value today?
Look at when a home accepts an offer. Any price adjustments made later on due to home inspections, etc. are done as a credit towards closing costs. As a result, going back to when a house first accepts an offer is the right date to use.
Because some homes wait many months to close, not all recent closings necessarily prove value today. It really depends on timing.
Market conditions can also be very important. Today the market is stable so this is not a major factor. There have been times when market conditions changed severely.
For example, when prices are moving up or down quickly, sales beginning 4-6 months ago will be out of whack with values today.
Comps Don’t Work
Comps don’t work because they’re not always truly current. Sometimes market conditions have a big effect. Sometimes the sale began 6 months ago. Because of this, it’s not always the best way for a seller to price their home or a buyer to figure value.
As a result, always look up when an offer was accepted for both sales and under contract homes. Check market conditions too. Taking this big picture look helps both home buyer and home seller alike to stay out of trouble.
If you want help to price your home or to find value as a buyer, give me a call at 201-741-8490.