What comps do you use when you can't find an ideal match?

Question

Hi All! I have been finding older properties in my area with very many recent sales nearby. However, there are newer communities within short distances from the older homes and I am assuming that I cannot use the sales prices for the newer homes as comps. There may be a 25 - 40 year difference in age of the homes. What comps do you use when you cannot find an ideal match?

Connie Presley · Answer

@Mike Cumbie ok, that makes complete sense! I am still not 100% on the best figures to use for the adjustment, so I am guessing that like with anything else, I will get more comfortable with the numbers as I gain experience. Thank you for your help! When you are still relatively new in the industry, every analysis is subject to over-scrutiny (mostly by me lol) and I wanted to feel confident in the numbers that I present.

Mike Cumbie · Answer

Hi @Connie Presley

Each area is different so it will rely on some local info.

In my area I have an adjustment that I use after 10 years per year.... based off sales price. For instance (1K a year after 10 years if they are 100K properties may work). Now if they are 400K properties, that is a silly number. Also if they are 100K properties and 60 years apart that is silly also (sure a fully rehabbed place is now worth 40K because it was built in 1950).  So running some numbers and getting soe averages over time is your best bet.

Good Luck!

Bob Okenwa · Answer

You can use the newer homes as comps so long as the building size and lot size are relatively similar. You will just need to adjust the price of the older property downward in comparison to the newer homes due to its age and condition.

Connie Presley · Answer

@Van Blackman I am kind of in that same line of thinking...if I can't find a "true" comp, then I am apprehensive on taking a property on. However, I really feel like I am shooting myself in the foot in that regard because some of these properties seem like they could make nice investments. I just want to be able to easily find a buyer if a buy if needed.

Connie Presley · Answer

@Sam Shueh ok, so you are suggesting that I focus more on the similarities of the materials (or upgrades) in the interior versus the bed/bath, square footage data? That's interesting and insightful!

Van Blackman · Answer

@Connie Presley

Hello!!

Good stuff up there.

With me, especially because I've only accrued about 12 months experience in Chicago where we are buying right now, anytime I cannot identify true, apple-to-apples comparables, I might just pass on the deal altogether.

Especially in Chicago where you have several types of homes (bungalows, ranches, cape cods, georgians, etc.), you really cannot comp one with the other unless it's the same style.

Here are some general tips when comping homes:

Never cross any major highways, and try not to cross any major streets if you can. If you have to, draw a 0.5 mile radius from the subject property and go back no more than 6 months. If you're crossing major roads, though, you'll need to make sure that your comps are all zoned to the same elementary, middle, and high schools as yours. If they don't match, you'll need to do research to make sure yours is zoned to the better of the few. If not, don't use!!

Regarding size, personally, I only like to use a 300 SF sliding scale. Any more might be too much, but that could be a personal preference.

If your house is a 3/2 one-story ranch with no basement, than ALL your comps should be a 3/2 one-story ranches with no basement.

Regarding age of home, I really like to stay under 9-10 years at most if possible.

In summary:

Don't try to fit a square peg into a round hole. If there aren't any TRUE comps in the area that you're looking to buy in, and you're not 100% familiar with the area, maybe it would be wise NOT TO BUY that property! Unless you know the neighborhood VERY well, I would stick to the guidelines above. Of course, everyone has their own individualistic way of comping, but I would consider the above tips reasonably safe.

Hope this helps!!

Sam Shueh · Answer

Most lenders want +/- 10 year, +/- 10% GLA, within 0.5 mile or so distance on comps. Since it is more a wish list and life is more complicated. You make adjustment on the similarities. Kitchen, flooring, baths not necessarily total amount  $ put in. Lenders want to know if both have stone countertops, jets bath, hardwood flooring but does not care it is engineering or gleam wood flooring …..

Connie Presley · Answer

Thanks @Bob Okenwa! I have been having to use newer properties and adjust the numbers as you suggest, but I was hoping for a more exact science if it existed. Thank you for your advice!

What comps do you use when you can't find an ideal match?

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