Comps Are Great... Except When They Aren't

Good fences might make good neighbors, but when it comes to evaluating real estate transactions, there is no separating your property from others in your neighborhood. Both buyer's and seller's agents use comps as a key metric for determining both asking price and offer price.  As a result, your neighbor's market activity as well as the condition of their properties can drastically influence the outcome of your home sale. The good news is in most cases, comps are a positive thing; however, there are some circumstances where comps can hurt.

What Are Comps?
"Comps" is short for comparables, which are nearby properties that are similar to yours in terms of size, age, rooms, and style. Your agent will use comps to help you determine a listing price, and potential buyers will use comps to determine their offer.  Comps can be found on a comparative market analysis (CMA) that is usually pulled together by a real estate agent. They are usually a good indication of real estate market trends at the local level.

Comps Can Work To Your Benefit
When comes to a home appraisal, comps play a meaningful role in the end result of the valuation. Consequently, they can also go a long way towards maximizing your sale price, especially when the market is hot and home prices are rising. If you notice similar homes in your neighborhood are selling for top dollar, it could be a good indication that you could achieve a similar price.

A good comp will include a property that recently sold and is similar to yours in terms of size, age, condition, rooms, and style. It should be located within a one-mile radius of your home, in the same school district, and in the same zip code.

When Comps Can Hurt
Foreclosures or short sales within your neighborhood can negatively skew the results of a CMA in a big way. In this is the case, your agent may try to widen the search radius or timeframe when pulling comps for a CMA when determining your sale price. However, buyers may leverage the recent data, which includes the foreclosures, when trying to justify an asking price. 

On the flip side, if a neighboring home sold for way over asking price, this could also skew the data, in which case, you may end up pricing your home too high and be forced to decrease the asking price over time. Declining home prices are often a red flag to buyers.

Also, when the market is cool, comps are not as effective when used as justification for a higher sale price. In a buyers market, there is still a good chance offers will come in low regardless of the details of the CMA.

Comps play an important role in the home sale process. They can influence your asking price, the offers you receive, and the sale price. Working with an experienced real estate agent is the best way to leverage comps to your advantage.

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