When it comes to figuring out the current market value of a property we want to make sure we’re comparing apples to apples & not just pulling a number out of our...um...thin air. The term "comps" refers to comparable properties that are used to figure out the current market value of a particular property.
For starters, Your real estate agent will look at similar homes to figure out how much a buyer is likely to want to pay for it. The homes your agent will look at will be:
Homes currently on the market including those that are pending or under contract; Homes that were on the market but never sold, so the owners took them off the market; & Homes that recently sold.
Generally speaking, your real estate agent will look at several factors to determine whether a home is similar to yours, including:
Location, Size, current condition,
Number of bedrooms and bathrooms,
Recent sale prices within the area,
Style and other important details.
Location is the highest priority. When it comes to location your agent isn’t going to compare your home in North Providence to a home on the East Side of Providence – it just doesn’t make sense because they’re two different markets. Likewise, even within the same city, prices can vary greatly. She will look at your home’s location and find homes within a short radius to compare it to.
Your home’s square footage has a lot to do with how much it’s worth, so your agent will look at similarly sized homes to help her arrive at a price. Likewise only homes with a similar number of bedrooms & bathrooms should be compared. The condition of your home & the age of your major systems will also carry a lot of weight. Is your roof 25 years old? Is the heating system, hot water tank, & AC compressor aging out? Is your kitchen 15 years old or more? Any buyer is going to have to take that into consideration & that can drastically affect your market value.
Often, the best comps are homes that are currently “pending.” Why? Because a pending home is a piece of live market data. A pending home means that a buyer and seller made a deal, and that deal will reflect the most up-to-the-minute stats on the market.
A good local real estate agent, leveraging her network, can get a fairly accurate idea what the ultimate sale price or range is for a pending deal. Try to stick with sales in the past three months, and never go more than six months, because older data is not reflective of the current market.
When you’re deciding to sell your home you need an agent who can provide you with a Comparative Market Analysis---a comp report that will give you the best price range to get your home sold quickly. You want to make sure that the comps are strong to make sure that there are no hang ups when it comes to your buyer financing the property--if the lenders appraiser does not think the price is fair market value then the buyer will not be able to secure financing & you could end up having to start over.
Likewise, if you’re a buyer & you’re considering putting an offer on a property you should expect your agent to help you to determine the best price by providing you with neighborhood comps to either support the price, tell you how high over asking the market supports, or whether the property is overpriced & by how much. You also want to be confident that the bank appraisal is going to support the purchase price.
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