What are comps?
Comparables (comps) are properties that have been sold in the last 6-12 months that resemble characteristics of the subject property you are analyzing.
Comps are used to help determine what the subject property will be worth after the repairs have been made to bring the subject property to its desired condition.
- Looks for comps that have been sold in the last 6 months. If there is an insufficient number of comps, look at properties that have sold in the last 12 months.
- A comp is NOT a property that is currently for sale
- A comp has similar characteristics as subject property (# of beds, # of baths, square feet, year built, area, etc.)
- Preferably within a 1-mile radius of the subject property
- Make sure the comps follow the rules above.
- Review images to see what kind of rehab was done to the property
In a perfect world, all comp properties would be EXACTLY the same. However, that is hardly ever the case. This is why it's necessary to adjust your comps.
Here's an example situation a property you're analyzing (subject property) with 3 different comps.
Comp 1 Analysis:
- Size - Has 50 more square feet, but everything else is the same.
- Year - Comp 1 is a little newer than the subject property
- Better/worse - This property is the same
- Adjustment - No adjustment needed
Comp 2 Analysis:
- Size - less beds, baths, and less square footage
- Year - comp 2 is several years older than the subject property
- Better/worse - This property is worse than the subject property. The sold price of comp 2 needs to be increased.
- Adjustment - Add 10,000 to sold price. New sold price is 147,000 = 137,000 + 10,000
Comp 3 Analysis:
- Size - has more baths and a bit more square feet
- Year - 15 years newer
- Better/worse - This property is better than the subject property. The sold price of comp 3 needs to be decreased
- Adjustment - Subtract 15,000 to sold price. New sold price is 165,000 = 180,000 - 15,000
Now that we've adjusted all the comps, we will take the average of the adjusted value. The average of 150,000 + 147,000 + 165,000 = 154,000
According to the comps, the value of this property will be $154,000