What Are Real Estate Comparables

Real estate comparables — colloquially referred to as “comps” — are recent sales of similar properties that are used to determine a property’s current market value. Comps in real estate serve as a pricing benchmark that reflect the dynamics of the local market; provide valuable insights into price trends; help mitigate risk for both investors and consumers; and maximize opportunities.

Who needs real estate comps and why?

Real estate comps are crucial for buyers; sellers; real estate agents and brokers; lenders; and appraisers, among others. That’s because house comps provide a reliable gauge for pricing strategies, negotiations, and investment decisions, as well as financing and refinancing loans. Comps also offer insights into the dynamics of the local market and help individuals and professionals navigate real estate transactions.

While the main purpose of comps in real estate is to offer a reliable pricing benchmark, they fulfill slightly different roles for various real estate players, such as: buyers; sellers; real estate agents and brokers; appraisers; lenders; and investors.

Comp Types & Their Roles in Real Estate

Several types of real estate comps are used in the real estate industry, each with its own role in fine-tuning valuations:

1. Sales comps are the benchmark of real estate comparables. Sales comps analyze sales of similar properties in the nearby area and can be divided into recent sales comps and pending sales comps.
2. Listing comps analyze properties that are listed for sale but have yet to go under contract. They can be divided into active listings and expired/withdrawn listings.

What factors and variables affect comps?

Because it’s almost impossible to find the exact same properties for comparables, there are a host of factors and variables that affect comps in real estate:

1. Property-specific factors:
   • Location is considered both at the macro level (market, submarket or neighborhood), as well as a more localized level (street or water frontage; orientation; and neighboring properties).Size includes both the square footage of the home and lot, as well as the number of bedrooms, bathrooms and other areas.
   • Condition of the property depends on the age; state of repairs; renovations; and major upgrades, whether functional or cosmetic.
   • Characteristics and amenities —such as pools, garages, solar panels, home offices, green spaces and landscaping —can significantly elevate the value, whereas atypical designs are often a drawback.
2. Market conditions:
   • Supply and demand: In a seller’s market, supply will be limited and prices higher, whereas, in a buyer’s market, prices might decrease.
   • Interest rates: Lower interest rates create hotter markets with increased demand, while higher rates usually affect buying power.
   • Economic indicators: Consumer confidence, GDP growth and employment rates influence the viability of the real estate market.
   • Population: In- and out-migration directly affects supply and demand.
3. External influences:
   • Zoning and regulations: Building codes, new zoning laws, and nearby and planned developments.
   • Market perception: A neighborhood’s desirability, which depends on infrastructure, schools, crime rates, commute times, area amenities, green spaces and more
   • Seasonal fluctuations: Spring and summer are more active and higher-priced
4. Comparables selection and adjustments:
   • Select the right type of comparable properties and adjust for differences in condition, size and amenities.
   • Identify true matches and differences: Houses of similar square footage, age, amenities, lot size and location may look similar on paper, but might belong to different school districts; be close to heavy traffic or commercial zoning; or have an overall better condition.
   • Take into account seasonality: Similar properties may have sold at different stages of seasonal activity which will affect pricing.
   • Adjust for demand: Homes that are similar on paper may have sold only after a price cut or, conversely, a bidding war that pushed the sale price above asking.  

Why Are Real Estate Comps Important

Real estate comparables are key to determining property values and guiding transactions. They reflect market trends and property-specific factors like location, size, and condition and as result, provide a pricing benchmark for buyers, sellers, agents and lenders. By selecting and adjusting comps carefully, real estate professionals as well as homebuyers and seller ensure fair pricing and informed decisions.

Disclaimer

Information provided on this page is purely informational and is not, and should not be regarded as, investment advice. 

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