Comps
“Comps,” short for “comparables” or “comparable sales,” are recently sold properties that possess characteristics similar to a specific home being evaluated (the “subject property”). In residential real estate, comps serve as the primary data points used to determine fair market value. They provide the concrete evidence needed to move pricing discussions from subjective guesswork to objective analysis.
Purpose and Function
The fundamental purpose of comps is to establish a realistic baseline for value. Because no two homes are identical, real estate professionals and appraisers look for properties that are substantially similar to the subject property to gauge what buyers are currently willing to pay.
By analyzing comps, stakeholders can answer critical financial questions:
- For Sellers: What is a competitive listing price that will attract buyers without leaving money on the table?
- For Buyers: Is the asking price justified, or is the home overpriced compared to the rest of the neighborhood?
- For Lenders: Does the property’s value support the loan amount requested by the borrower?
How Comps Are Selected
The reliability of a valuation depends entirely on the quality of the comps selected. Real estate agents and appraisers use strict criteria to identify the most relevant properties, typically looking for homes that match the subject property in the following ways:
- Location: Ideally, comps are located within the same neighborhood or subdivision, often within a radius of 0.5 to 1 mile. School districts and proximity to amenities are also key factors.
- Recency: The real estate market changes quickly. The most accurate comps are properties that have sold within the last three to six months. Older sales may not reflect current market conditions.
- Physical Characteristics: Comps should have similar square footage, lot size, age, style (e.g., ranch vs. two-story), and bedroom/bathroom counts.
- Condition and Upgrades: A renovated home with granite countertops and hardwood floors cannot be accurately compared to a “fixer-upper” of the same size. Adjustments must be made for significant differences in finish and maintenance.
Importance in Pricing and Appraisals
Comps are the engine behind two critical real estate processes: the Comparative Market Analysis (CMA) and the formal appraisal.
In a CMA, a real estate agent uses comps to advise their client on pricing strategy. If three similar homes in the neighborhood sold for $400,000, $410,000, and $405,000, the agent can confidently recommend a listing price in that range.
In a formal appraisal, the stakes are even higher. An appraiser is required to justify their valuation to the lender using specific, verifiable comps. If the appraiser cannot find comps that support the agreed-upon purchase price, the appraisal may come in low, potentially jeopardizing the financing and the entire transaction. Therefore, understanding comps is not just about setting a price; it is about ensuring the
