A real estate comparable or comparable property is what banks and real estate companies use to determine the value of an objective property. Therefore, to become a success in real estate investment, it’s important to internalize the characteristics to consider when choosing a comparable property. The key takeaway here is knowing how to calculate differences based on the amenities present in your objective property. Therefore, with complete understanding and mastery over these, you can start becoming a seasoned veteran when it comes to determining property values and making the right investments.
What Are the Characteristics to Consider When Looking for Comparable Properties?
There are some certain criteria the comparable property must meet. These include:
Whether or not the property in question is within a mile of an urban area, or is it out in the suburbs.
When comparing the age of properties, make sure they are within 10 years of each other.
3. Square Footage
Compare the above-ground footage and basement square-footage of both properties independently.
Ensure that you compare property types consistently. That is, homes should be compared against homes, and apartments against other apartments. Mixing things up will not provide any insight.
A comparable property should have one less or one more bedroom than your objective property.
A comparable property should have one less or one more bathroom than the objective property.
The style of homes you compare should be consistent as well. Therefore, you should compare duplexes against duplexes and multistoried houses against other multistoried houses.
8. Date of Sale
When comparing properties, ensure that the comparable property has been sold within the last 6 months. However, it’s better to compare against properties which have been sold in the last three months.
How to Compare Potential Investments with a Real Estate Comp?
Once you find the right comparable property for your objective property, it’s time to make adjustments based on additional and missing features. With careful adjustments and proper considerations, you should be able to calculate the exact price.
To get the right adjustments amounts, you need to do thorough market research. For example, if your comparable property has an additional bedroom, you need to associate the value of a single additional bedroom with the market you intend to hit and subsequently calculate the adjusted price.
To consider another example, while a larger home might be more expensive, the value does not scale linearly with the size. Therefore, when adjusting against a comparable property, don’t simply add in extra value for each additional square foot. But instead, consider the type of property, comparable property size, and market demands.
Finally, take special note of market fluctuations when comparing properties older than 3 months. While the real estate market in your area might be stable, a lot can change over 6 months and so, keeping an eye on current market evaluations should make your comparable property estimates accurate.
With these specific characteristics in mind, you should be well on your way to finding the right comparable real estate to estimate the value of your objective property. Once you get a handle on making adjustments against comparable real estate, you should be able to make quick judgment calls on worthwhile investments.0