Which comps are most important?

Question

I'm looking at a property, and using my own comps (I use only comps within 0.5 miles and sold within 90 days) the property looks like a steal. Asking price is $119,900.                                                                                                                                                                           ARV using my comps is $263,292.

However, using comps the agent sent me, (his comps are 1-2+ miles away and sold within 45 days) ARV using agents comps is $180,752.4.

Generally, going by what I have learned as an investor, I would say that my comps are more accurate because they're much closer to the subject property than the agents comps are. However, his have been sold more recently. Plus, I typically try to make the worst possible scenario when evaluating a property, so that everything after that is just gravy. Even using his comps, the deal seems to work.

I'm just curious, with this big of a jump in ARV, which comps/ARV would you go by?

Charlie MacPherson · Answer

@Corey Rippeto  One thing that stands out to me is that your subject property is 4 beds and 2 baths in only 1,332 sq ft.  Those have to be some VERY small rooms - which will limit your market at resale or rental.

I'd be curious if all 4 beds are legal/permitted.  Look to see if a previous owner chopped up the floor plan to fit more rooms.  My current home in Plymouth is 1,323 sq ft and is a 2 bed, 1 bath.  Check the tax records and the building department.

That said, using a 1/1 to comp a 4/2 is malpractice.  There is simply no comparison between the two.  They'll attract a completely different audience of buyers and will sell at wildly different prices.

I run comps manually.  I compare the things that drive property values and list them on a spreadsheet.  I find it much easier to compare.

I organize the spreadsheet in three sections.  Subject property, solds (actual history), on the market now (your competition).

Here are the values I use:

Style - Cape, colonial, ranch, etc# of beds# of bathsSq ft of living areaAcresGarage - # of spaces, attached, detached, underBasement - finished, partially finished, slab, etcSeptic - private, testing complete?, town sewer, etcDays on market - I drill down to understand why a high number of DOM.Whether REO or short saleYear builtConditionSale price

Ideally, I'd like to match all of those features as closely as possible and I want the solds to be within 1/4 mile and sold within 6 months.

Often, there's not enough data.  My practice is to first push out to 12 months and then out to a mile in 1/4 mile increments.  If I have to go much beyond that, I advise my client that the data is a little less reliable.

Good luck!

Cameron Tope · Answer

@Corey Rippeto Thanks for the info!

It sounds like he just did a quick CMA with not a lot of thought. I would mention it to him bc I've never used (and don't know any reputable realtor that would use) a 1bed/1bath comp for a 4bed/2bath house. If he pushes back then find a new realtor.

I would also try to find build dates from 1987-1997 as the newer built properties will sell for more. If you have to go back a year to get the accurate comps that's okay.

Filter for 3-4 beds and 1987-1997 build and see what that returns.

Cameron Tope · Answer

@Corey Rippeto I think most of us have been in this situation at some point.

We always take the size, age and finishes into account. You can't just pull all the houses in that area but rather "like" houses.

Have you looked through the agents comps? Do the properties look "like" the property you're looking at? Then show him/her your comps and see what he/she says.

I find it hard to believe that your comps and his/her comps are "like" houses because of the drastic difference. My guess would be one of you are taking the wrong type of houses/neighborhoods into your calculation.

Best of luck!

Patricia Steiner · Answer

Comps are more specific than recent sales in close proximity.  It's comparable properties (type, size - both square footage/land, bed/bath) in generally a mile area within 60 days.  I usually start with what sold in the past 30 days and then up it to 60 days.  And, comparable sales are then adjusted with the differences in the subject (proposed) property being made against the sold prices of the comps.  It's tedious and time consuming when done right.

Property demand is a factor that investors need to consider in addition to market demand.  There is a real disconnect between the type of properties that renters are showing preference for within a given market.

Brian Ploszay · Answer

I would suggest getting another opinion of value from a different agent.  That variation needs to be reconciled.

Corey Rippeto · Answer

@Cameron Tope you bet!

Yeah, he honestly just sent me an mls of properties that had either sold or we’re still active within the last 45 days. It was very obvious that he didn’t put much effort into the list he sent me.

In order to factor in those dates, I’ll push back the sale date limit. That’s fine, though. I need to get out of the habit of using only comps sold within 30-90 days!

@Patricia Steiner thanks for that! Yeah, I normally start my process of comp searching by factoring in 0.25 mile and sold within 30 days, pushing out those 2 factors up to 1 mile / 90days if need be, until I find a decent amount of properties. From there is when I account for everything else, to dial it down more.

I suppose it would be better to just specify every factor from the start and pushing those out very incrementally instead. It does sound more tedious, but at least you know for sure that the comps are very close matches!@Charlie MacPherson I like that checklist! I think I’ll try using that process myself to compare it to mine. All my mentors and teachers/fellow investors have always told me that they use comps sold no more within 90 days, so that’s just been a habit of mine ever since I started. And it’s worked alright for me, but that alone can thin things down fast, and the comps leftover often aren’t similar, often causing me to walk away from it. Which means, I could be leaving a potential deal behind before I even see other comps. I don’t like that one bit!Definitely seems like you could find more “like” properties by increasing that time frame and focusing more on specs. Thanks for all the great answers! I’m glad you all reached out, because now I can change my searching process to more accurately find comps and hopefully leave less deals behind. You guys rock!

Jaron Walling · Answer

@Charlie MacPherson "One thing that stands out to me is that your subject property is 4 beds and 2 baths in only 1,332 sq ft.  Those have to be some VERY small rooms"

I completely agree with this and it makes me curious about the interior feelsss. Lots of walls = less $$$$.

Corey Rippeto · Answer

@Cameron Tope thanks for the response!

Yeah, guess I forgot to include that bit. Doh!

The subject property is a 4 bed/2 bath, 1332 sqft built in 1992.

I always try to use the most accurate specifications when using comps, but I do tend to prioritize Distance & Sale Date as the initial factors when thinning it down. If there are a significant amount of matching comps after that, then I try to narrow it down more using other factors such as sqft, bed/bath & then build date.

In this particular area, 4 bedroom houses are not so popular. Because of this, my comps consist of only:

• 3 bed/2 - 2.5 bath
• 1100-1600 sqft
• Within 0.5 mile
• Sold within 90 days 
• Build dates being mostly between 2005-2008, but also one being 2017

Comps that the agent used ranged more extensively:

• 1 bed/1bath - 4 bed/2bath 
• 700-1700 sqft
• 1-2+ miles away
• Sold within 45 days
• Build dates from 1900-1984.

I should have included all the factors used to begin with. Sorry about that!

• Interesting.. Guess it took me coming to the forum and writing it out for someone else, for me to see just how much more accurate my comps actually are compared to the agents.. You say I should bring this to his attention then?

Which comps are most important?

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