Tips For Selecting Comparable Sales When Selling a Home
When I sit down and talk to a home seller about listing their home the first question most home seller wants to know, is…. what can I sell their home for….
Often followed up with my neighbor sold his for $800,000, and as I look at the neighbor’s house is towering over theirs with brand new siding, a new roof being three times the size of their home.
Unfortunately, the neighbor’s home is not a good comparable property to indicate their home’s value. While in the same neighborhood, it is important comparable properties have other features in common.
Determining Value
A real estate agent uses a Comparable Market Analysis or CMA to determine the value of a home. A Comparable Market Analysis is a report that uses similar, recently sold homes to determine the subject home’s fair market value.
Similar homes are referred to as comparables or comps. Comps are often adjusted slightly for amenities a house may or may not have compared to the subject property, like a garage, central ac, sprinkler systems, etc.…
In many ways, a real estate agent will mirror what an appraiser will look at when evaluating a home. An appraiser has some strict guidelines to follow, while an agent has a little more leeway when choosing comparable homes. In the end, the house must appraise, or there will be problems with a buyer financing a home.
The accuracy of the CMA relies on choosing good comparable homes.
What Makes A Good Comparable Home?
A home seller needs to know what makes a great comparable or comp for your home. Plus, if you understand what makes a comp for your home, you can have an educated discussion with your REALTOR about why a particular house is a comp or isn’t a comp.
A comparable home is about similarity.
It would be awesome as real estate agents in an ideal world if we could find 3 identical homes in the same neighborhood on the same size and shape lot, all with a similar view.
But the reality is that doesn’t happen very often.
Factors To Consider When Selecting Comps
First and foremost we are looking for homes that have sold in the last 6 months and preferably the last three months.
And did I say sold?! A seller can ask any price they want for a home, but it is not a comp until it sells.
So besides being recently sold, what are we looking for in a comp?
Location- Comparable sold homes should be in the same town as well as be in the same neighborhood or within 1 mile of the subject property. If you have to go outside one mile, then you should use homes in similar communities.
Size- When selecting comps, a comparable home should be similar in size to your home. Ideally, no more than =/- 10-15% of your home size and certainly not more than 20%. When we talk about square footage, we are also talking about above grade living area. Finished basements, living space below grade is not included in a home’s square footage.
Condition- Condition can play a large role in what is a comp for your home and what is not. A 1980’s colonial period with no work done to its can vs. a 1980’s colonial with extensive renovations can have a very different value. Your comps need to be of similar condition.
Room Counts- Room counts not to be similar for a comp to be considered. A ranch can have 6 or 7 rooms, but it is essential to pay attention to the bath count and bedroom count. A 7 room ranch with one bath and 3 bedrooms is not a good comp for a 6 room ranch with 2.5 baths and 4 bedrooms.
Age- Homes that are compared should be of similar age. A colonial built in the ’60s will have a very different appeal and function than a colonial built last year.
Style- The style of the home needs to be factored in when selecting comps. Try to compare ranches to ranches and split levels to split levels and capes to capes. Each style comes with its own sets of benefits and downsides.
Amenities- Homes with garages, finished basement, central ac, sprinkler systems, etc.… should also have comps with similar amenities.
Adjusting Comps
Like I said earlier, there is the ideal world…. Which rarely exist. Often a real estate agent will have to make adjustments to comps. Maybe the adjustment might be a two-car garage versus a one-car garage, or a home has central ac, and one does not.
Or, on a higher level, a 2 bath home needs to be compared to a 1.5 bath home.
This is where it can start to get subjective. But an experienced agent will have a handle on what a bath is worth and what one garage stall is worth.
But as a home seller, every time you go outside these guidelines or adjustments are made, there should be a clear explanation of why. If adjustments for a home are going past 10% of a home’s price, you may need to find another comp.
Selecting comps can be as much of an art as science and cannot be as easy as it sounds on paper.
What Doesn’t Really Effect Your Homes Price
I have 3 acres of land… A building lot is a building lot. Of course, you wouldn’t compare a 5,000 square foot of land to 3 acres, but a one-acre lot will not have significantly less value than a three-acre lot.
I just spent $80k on a new deck….. Ok, but that just is not normal for a $500,000 home. Exessive, over the top renovations will not make your home worth more money. An $8-12k deck would have been a more reasonable expense.
My swimming pool was over $100k…. Depending on where you are in the country swimming pool may have more value. But here in New England, pools will only net you pennies on the dollars spent. In general, you will just have spent a 100k on a big hole in the ground many buyers will want to fill.
I spent a bundle soundproofing my basement family room…. Ok, dude, that is just plain creepy! But besides being creepy, highly personalized renovations aren’t going to make your home worth more money. (and yes, I’ve heard this one)
I have a new roof and a new furnace…. A home is expected to have a roof that doesn’t leak and a furnace that fires when you turn the thermostat on. You will not recapture the complete cost of a new roof or a furnace when selling your home. It may help add some conditional value, but in no way will you recapture the full cost of replacing something that the house needs to function properly.
Wrapping It Up
Understanding what makes a good comp for your home will help you have realistic conversations about pricing your home with any real estate agents you speak with.
When you have a good understanding of how and why your price the home the way you did, it will give you some confidence when negotiating an offer on your home. Correctly pricing your home can also speed up the sale of your home as well as make a less stressful transaction.
Hopefully, you now have a better understanding of what makes a good comp or comparable sale when pricing your home.