Today I want to talk a little bit about comparable sales, or "comps" as the realtors call them. If you want to sell your home, you have to figure out how much can get for it. Sure you could just add the amount of money you want to how much you still owe on your home but this strategy seldom works. How much your home is worth to you and how much your home is worth to someone else can often be numbers that are light years apart.
Alas, A home’s fair market value is determined by what a qualified buyer will pay for it at any given moment in time. Sort of like the old commodities explanation: if you can find someone to pay $500 for a watch, that watch is worth $500, otherwise, it's only worth whatever you can get for it.
During the Boom, a lot of people were willing to pay a lot for "watches" that may or may not have been worth the asking price. After the Boom ended, it took a long time for sellers to realize that they were not going to find someone to give them their asking price. Unfortunately, it's hard to take a loss on a property because we are usually talking about tens if not hundreds of thousands of dollars. So before you waste anyone's time, especially your own, trying to sell your home, you want to get an idea if what someone will pay is even in the ballpark of what you owe.
The only way to estimate what that Qualified Buyer will pay for a home before it is actually sold is to look at what qualified buyers have actually paid for very similar nearby homes, as recently as possible. This is what agents call looking at the “comps”. - Most listing agents will do a formal version of this process called a Comparative Market Analysis.
Before the days of the internet, comps were a little tricky to come by. Agents might not have known about a listing or recent sale in time to add it to their CMA. Or they would cherry picked listings to justify their case for setting a price.
In all fairness, unless the homes are part of a subdivision built by the same developer where the only difference is one house has red shutters and grey siding and the house next door has grey shutters with red siding, it can be hard to make an apples-to-apples comparison of one home to another.
"To determine which homes you should compare against your own, you'll want to target a search area of about a quarter- to half-mile radius around your house. It helps if the homes you research are in the same school district as yours and the neighborhood is generally the same as your own. You'll want to focus on homes with approximately the same square footage and number of bedrooms that are a similar age, condition and style home with comparable features and upgrades. All of these factors will help determine how a home is priced. "
Today comps are more real time. There's still a chance for error. Certain Realty Websites will simply grab everything on the market in a 1 mile radius, divide by the number of properties listed and spit out the average. Some agents, even when doing the formal CMA, don't always weed out dissimilar properties. Over the years I've had agents offer to run CMAs and I always take them up on it because I need a good laugh and don't have cable.
They'd show me listings that were miles away or me condos with more bedrooms and/or bathrooms than I have. An extra bathroom might not throw a comp off a lot but an extra bedroom is a different animal.
How much your home is worth to you and how much it is considered to be worth in the real estate world are often two different things. Believe me, I’ve been watching sellers with very unrealistic expectations list their properties over the last few years only to have that home languish on the market. The reality of realty is putting your home on the market is like a putting together a Broadway show. You only have one opening night when everyone is watching.
If a home is more upgraded, spacious or better located than the comps, or if the market has shifted since the time the comps were sold, it might warrant listing the property at a price higher than the comps indicate. Otherwise, you have to price it right if you want it to sell or even get any showings in the first place.
If a home hasn’t been selling, especially in a so-called sellers’ market, the first thing people assume is there is something wrong with it. Once the home has been rejected, they won’t come back, even if the price is lowered. They have already mentally discarded it.
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