Investors who work in the real estate industry will most likely need no introduction to the importance of obtaining recent sales comps in order to get an accurate valuation on a property. Sold comps – or sold comparables – are essential for any real estate professional to critically define the true value of a home. The ability to compare similar homes in the same neighborhood allows an investor to know where the home they are looking to sell sits within the marketplace, which maximizes profit and doesn’t leave the home overpriced and sitting on the shelf.
Sold Comps in a Non-Disclosure State
Sold comps represent the best available data in the real estate industry as many states – including Texas – apply a non-disclosure agreement where this necessary information isn’t openly available to the public. Sold comps are provided by those who know the local market and so are much more accurate than blindly stumbling through data which doesn’t give the overall bigger picture.
Recent sales comps in these states are often MLS comps – those which come from the multi-listing service. This information is only available to real estate agents, yet MLS comps are necessary for an investor to value their property, hence the importance of sold comparables.
Sold Comps are Essential for Real Estate Investors
Sold comps are an essential tool for any real estate investor looking to accurately pinpoint the true value of a home. By examining recent sales comps, an investor can define a home’s true value. To put it simply, by exploring the values for which similar properties sold for in the local area, an investor can see how much their home is likely to sell for and how quickly. There is no better data available for this than MLS comps, giving the clearest sold comparables for the house you are selling.
The Dangers of Not Using Sold Comps
The main issue with not using sold comps to get a valuation on a property can mean investors assign an incorrect price to the home for sale. If the home is priced too high it can sit on the market for a long time, meaning the investor has to slowly lower the price over time to come into line with the true market value. There is a loss of inertia when this happens. Those who see the same home for sale for many months could question the reasons it has not sold. The main issue for investors is being forced into a position where you are holding onto stock which ties up your capital.
Conversely, if a home is undervalued by not being accurately defined according to sales comps, the house can sell quickly but for a lot less money than it is actually worth. When dealing with real estate, minor miscalculations in the valuation equate to a large amount of money in terms of profit. By undervaluing a home, investors are essentially leaving cash on the table instead of maximizing the value of their investment.
The Types of Properties Used for Comparable Sales Data
The types of recent sales comps used to value a house depend on the specific home and location of the property you are looking to sell. Sold comps should be within the local area – ideally the local neighborhood – as every market is different and the desirability of an area can radically change the value assigned to a home.
Secondly, the type of properties in sold comps should be as close to the home you are looking to sell as possibly. While the number of bedrooms, number of bathrooms, and square footage should be as similar as possible, a lot of other factors come into play to accurately value the home for sale. Desirable additions to the home also make a difference, for example, a swimming pool, a two-car garage or a large yard will mean your three-bedroom home is worth more than a comparable home without these additions.
The desirability of a home is a factor which is a lot less tangible than simply the size of the building. Factors like curb-side appeal, noise from nearby roads, and access to nature make a difference to how desirable a home is. These factors alone are what make sold comps so very important for real estate investors. Sold comps are delivered by real estate professionals – the ones who know how much value these factors can add for a given location.
MLS comps are the best version of sold comps, and as there is a large variance to the profit you can make from a sale, it is critically important to get the most accurate recent sales comps.
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Image courtesy: Flickr and Kevin Dooley