4 ways to know you are looking at the wrong comparables

4 ways to know you are looking at the wrong comparables


Whether you are buying or selling real estate, the age-old way we use to try to determine listing or offering price is through comparables

Real estate comparables (comparable sales or comps) are a collection of three to five homes that have similar characteristics to the target home – the one you are thinking of buying or selling. Comparables are a good starting point to determining value, so long as you start with good comparables. You are trying to compare apples to apples, which may be fairly easy in a cookie-cutter neighbourhood, but more difficult in an older area. Either way, the best comps are the ones ‘most like’ the property being valued.

Unfortunately for one reason or another, sometimes you start out with bad comps and end up with the wrong price. Here are four ways to know that you have the wrong comps:

#1 The comps are out of date

Real estate markets can move pretty fast. Earlier this year, home prices were up near 40% on a comparative basis of the same month a year ago. That’s huge. Also, prices are always a little bit elastic throughout the year depending on the season. In terms of time, the most relaxant comps are the most current.

#2 The comps are in a different neighbourhood

The three most important things about great real estate are location, location and location. What we mean by this is that you want to be in a good school zone, near amenities both public (like parks) and private (like shops) and you want to be near but not too too near good transit and transportation networks. If you compare the market prices of two similar homes in two dissimilar neighbourhoods you will likely find a large gap. This is due to the overall desirability of the homes and neighbourhoods.

#3 The comps are really appraisals

We are all looking for formulas to help us figure out the true market price. If you look at appraised value, square footage, lot size, number of bedrooms and bathrooms and whether the basement is finished or unfinished, if you look at that stuff only, that is an appraisal. (See #2 above)

#4 The comps are not sold yet

If you look only at homes that are currently on the market, then you know your competition. But you may all be wrong about the price Market price, by definition is what a home just sold for, not the list price and not the offer price. When money gets exchanged, that’s the market price. That’s why similar homes recently sold are the best comparable.

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