How to analyze comps

Question

Hello, I'm new and going to be starting out with Real Estate Investing after I retire from the Marine Corps in a few months. I've been doing alot of homework and listening to podcasts but one thing I've not been able to determine yet is how you guys are analyzing your comps. What makes a house a comparable house to yours, and how do you find them? Is there a tool out there somewhere that allows you to see these, or do you have to have access to the MLS?

Maybe I'm way overthinking this and it's as simple as finding the same style home with same bedrooms/bathrooms and figuring out the square footage. I'd be relieved if that were the case!

Thanks!

Darren

Maybe I'm way overthinking this and it's as simple as finding the same style home with same bedrooms/bathrooms and figuring out the square footage.  I'd be relieved if that were the case!

Thanks!

Darren

Chris Mason · Answer

Welcome @Darren Finney & Semper Fi. Your ability to cut through BS, be realistic, and get things done will aid you immensely. Marines make good RE people, though I am a bit biased.

I would suggest starting with the real deal and the basics: Actual appraisals. Whoever you're working with that's been in the business for a while can probably search their email inbox for "appraisal" and get a zillion results.

If you look on page 2 of the linked PDF, you will see what is basically the "money page." It contains information on the subject property, and 3 comparables, and when completed those boxes will have dollar values for how much the appraiser thinks that feature is or isn't worth, relative to what the subject property has, in that particular market.

For example, a swimming pool is going to carry a different value in Arizona than North Dakota.

Blank appraisal: https://www.fanniemae.com/content/guide_form/1004....

If you're willing to spend money to be REALLY good at valuating real estate really quickly, I have an unusual suggestion: Interview 3-5 appraisers, pick the one you feel to be the most intelligent, and hire him to appraise some residential property, with the understanding that you want him to sit down with you and explain the appraisal in detail once it is complete.

Normally, an appraisal costs ~$500 and the appraiser's actual cut is only a few hundred. In this case, you're going to be hiring a guy that gets the full $500, so he's going to get way more than he normally makes for doing the same job, and he's going to be happy to go over the appraisal with you and how he concluded what he did. Appraisers hate people like me and real estate agents because often we just want them to hit a number and STFU, by contrast you are actually going to value his opinion and how he reached his conclusions - appraisers are hired to offer opinions, but it's rare for anyone they speak with to actually care about those opinions. So I'd expect this to be the best appraisal this guy completes for the entire calendar year!

Seth Nadreau · Answer

As an agent and an appraiser, I do a lot of comps work for investors. One tool that I love to utilize for flip properties is a CMA (Comparative Market Analysis). This pulls all the comps (rather than narrowing it down to 3-4 like an appraisal or BPO would). As a rule of thumb (and what Fannie Mae uses as a guideline!), I go out 1 mile, 25% living area and 10 years and then I include key factors of value (pool? water view? acreage?). This can usually return 20-40 comps in a good thriving market. Sort them by price, and you have a pretty good idea what your offer should be (aim towards the low end) and what you can expect to sell for (aim towards the high end). This is a GREAT tool for investors and any agent worth a damn could run a report like this in less than 20 minutes. Whoever you use to buy or sell should be your go to person for this... if you like them.

Seth Nadreau · Answer

Yeah... there were a lot of bad appraisers prior to 2008... but there were also a lot of bad agents and a lot of bad lenders, too. Appraiser's got a pretty bad rap and federal laws such as the HVCC and Dodd/Frank put an end to that. States regulated many of their appraisers out of business and passed new stricter requirements for any new appraiser trying to enter the market.At this point, unless you know someone personally and don't mind working for peanuts for 2 years, you can't get in to this business. For me, that's been a blessing. If you do things right from the beginning, you stick around to reap the rewards in the end. I'm far from the end... but I'm certainly enjoying the fruits of my labor.I love Mark's advice about ignoring Zillow and he's pretty spot on regarding market knowledge. The one area I disagree with him is the Appraisal Institute designations. I find in all real estate practices, designations are mostly purchased and not always a true sign of skill-set. Personally, I don't do much with the Appraisal Institute simply because I have some policy disagreements with them. That doesn't mean I'm uninformed or inexperienced. :-)

Mark Vejnar · Answer

@Darren Finney

Chris Mason implies, and it's important to understand why.

There are tools.  You asked about tools so I'll share one I've used through the years to identify and/or filter comparable sales.  I'll go ahead and state that I am not in any way affiliated with Court Retrieval Service (CRSdata).  I've found this tool invaluable as it gives access to tax records and closed sales, along with other useful data.  The tax assessor does mass appraisals each year and this data can be a fairly reliable way of checking assumptions.  You also have the ability to identify closed sales.

Also, please ignore Zillow, and try to refrain from referencing Zillow when talking to appraisers. Is it possible to get ballpark estimates from Zillow? Sure, [blind squirrel analogy], but you have to really know your market.  I know I'm a data snob - sorry :-/

I hope this helps! Good luck!

Darren Finney · Answer

Thanks everyone - I really appreciate the responses and advice.  Look forward to putting it all to good use soon!

Annette Coker · Answer

I would never use Zillow. They don't take into account condition of property which is crucial. If you don't have access to mls get an appraisal, or find a local agent to do a market analysis for you. Probably can find one that will do it for half the price of an appraisal.

Jerry Stanford · Answer

@Darren Finney...Welcome to BP and thanx for your service...you've got the idea pretty much...Zillow is a ballpark estimate...Findcompsnow.com is pretty decent...if you can find an investor friendly realtor or appraiser willing to lend a hand, that's even better. Basics are, same bed/bath/sq ft/year/exterior/gen style/within .5 mi/within 3mos sold.  As the comps have things like fireplaces and pools, you add and subtract from the subject property.

Sarah Ziehr · Answer

Like Chris suggests, an appraisal is the most accurate way to value a property.

The next best thing is a broker who understands appraisals, has seen many appraisals or taken the BPO class.

When I run comps I look at the last 4 months of data, and other factors like where the bedrooms are located, size of the rooms, etc. It can be very detailed and depending on your market you may or may not be able to use a house 1 mile away as a good comp. In my market the difference between a $400k and a $600k house is literally .3 miles.

Franklin Fletcher · Answer

Hi Darren, welcome and semper fi (ex-navy, but marine corps trained, hooah! sorry, I know that's a stretch, but hey, thanks for your service!).  Before 2007, in our Atlanta market at the time, most realtors thought very lowly of most appraisers.  They were just looking for the appraiser to concur with their contract number.  They greased the skids for the agents, who then continued to butter their bread by calling them for future deals, etc.  I don't know if appraisers have changed much but if you want a true comp you'll want to know what they actually sold for.  So Seth is steering you right for sure.  I plan to find a good agent in my area and thus be able to nail down those property values when negotiating.  Good luck.

Darren Finney · Answer

Thanks Chris and David, great advice.  I never really thought about talking with an actual appraiser to see his point of view, that's an awesome plan and well worth the $500 it might cost.  I've been looking at Zillow and other websites like that but just felt like there might be something I was missing.  I like to know why things work the way they do, so I think I'll definitely link up with an appraiser.

Thanks again guys, I really appreciate it.  Sorry I wasn't your Company Gunny Chris...but you would've hated me as a Gunny anyway.  It took me a while to settle down and turn into a human being instead of an animal!

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