What are Comps and why you need them
- April 10th, 2020
- Matt Frentheway
- No comments
When you begin the process of selling your home a term you’ll hear often during the home appraisal process is “comps”. So what exactly are “comps”, what does that mean, and how are they determined?
First of all “comp” simply stands for Comparable Sales. This is referring to homes that have recently sold nearby that are comparable and similar to the home you’ll be selling. And how is it determined that these homes are similar enough to be compared to yours, you ask? Appraisers will determine if a recently sold home in your area is similar enough to yours with these characteristics that match your home:
- Size of the Home (Square Footage: both outside and inside)
- Year of Construction (Within Five Years of when your home was built)
- Number of Bedrooms and Bathrooms
- Condition of the home
- Finishes and Upgrades
These comps will assist in pricing your home with accuracy. Then the “Fair Market Value” can have some wiggle room to either add to or take from depending on if there are any unique features specific to your home.
Once a pool of properties has been gathered your appraiser will take account of how much these homes have sold for. They’ll tend to avoid active listings in this process because they are the best “comp” for what your home is worth. For example, let’s say there’s a home in your neighborhood that has been listed for $450,000. Awesome. But, if it’s not selling how do you know if it’s been listed for too much? Or too low for that matter.
It is preferred that the most accurate comps are those homes that have sold within the last two months because they represent the most recent conditions of the market. There may be times where sales aren’t as frequent and the appraiser will have to draw from comps from the further back.
You might be wondering “Will comps really help determine my home’s value?” The answer is, Yes! Comps are more than a “good to know” component of the pricing strategy. This is a point of reference that will benefit you a number of times in the home selling process.
When your home goes into escrow, your home will be appraised on the mortgage lender who’s financing the property’s behalf. They will analyze these comps in their own way. If this appraisal finds that the fair market value of the home is less than the agreed upon price, the buyers may want to renegotiate the sale price or might drop out completely.
For this reason, it is of the utmost importance to our Aspen Appraisers that they find the most accurate comps for your home appraisals. Some loans require a certain number of comps.
The minimum number of comps needed is around three. But appraisers will get up to six similar and recent comps to play it safe.
Comps are an essential part of your home appraisal. By gathering this information we know we’ll be able to provide the most accurate appraisal on your property. When scheduling your home appraisal, feel free to ask our office or your appraiser what they’ll be looking for when it comes to your comps.
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