Pulling Comps: Am I doing it correctly?

Question

Let me begin by saying I am new to wholealing I try to pull comps as conservatively as possible, as if every house depends on a hard money loan. Here is a general guideline I use, I would love to have some feedback.

1. Try and only go back 6 months if possible to get sold comps in determining ARV. If 6 months back does not get enough solid comps, then do 8 months, then 9 months, then maybe 10 at max. If you have to go further back then that ditch subject property not enough solid comps to show ARV.

2. Need at least 3 solid sold comps

3. Within +/- 20% Sq Footage of subject property at MAX. I prefer within +/- 10% if possible.

4. Within +/- 10 years

5. Same number of bed/bath/garage for comps as subject property if possible. e.g. Subject property is 3/2/2 comps need to be 3/2/2 or 4/2/2. Try and keep same exterior as subject property in comps as well ie. if subj property is frame ext, pick frame comps.

6. Geographic area for pulling comps, stay within confines of major roads as illustrated below.

7. Once have solid Sold comps, get the median $ per sq ft price and multiply it by the subject properties sq ft. For instance lets say the sold comps based on the above criteria ( 10 years, 20% sq ft etc) show a average price of $63.00 per sq ft and your subject property is 1500 sq ft. You take 1500 x 63.00 to get an estimated ARV of $94,500

Thanks for your feedback!

Steve Babiak · Answer

Samantha,

I pulled Michael's statement and emboldened key points he was trying to drum into you.  In other words, when the seller gives the buyer concessions, that lowers that actual net amount received by the seller - so that sales price may actually be a somewhat inflated value.  And if you can discover the concession amount (it will show up in MLS for MLS transactions), you can make that adjustment.  You might find that the higher sales price netted the seller less than a lower sales priced house due to concessions that the lower sales price that did not give to the buyer.

Michael Quarles · Answer

Understanding the numbers is important however IMHO understanding seller concessions and motivation play an important role as well when determining value.  And when looking at ARV understanding buyer requirements play a huge role.

Also removing high and low without knowing the sellers position on costs of sale, give backs and physical concessions would be too arbitrary...

Numbers by themselves are great in determining a standard value however the reasons behind the numbers tell the story.

Michael Borger · Answer

You're generally on the right track. The first commenter has some good advice as well to tighten up your methods. One thing I didn't see mentioned is the condition. If some of the comps are in fair or average condition, then you need to bump those up for your ARV according to how much extra value the comps would have if they were fully rehabbed per the neighborhood. This is really where running comps becomes as much of an art as it is a science. Good luck!

Bill Gulley · Answer

As an investor pulling comps you methods are acceptable but to #6, your definition of neighborhood may not be within the confines of major streets...but could be.

Usually you want one in the same neighborhood, possibly 2 and one close but outside the subject. The neighborhood may be defined by an area or specific ngb, like Twin Oaks or Southern Hills.

Neighborhoods may have a market influence as a sought after area due to schools, proximatety to shopping or other amenities. These issues may define the ngb and you need similar amenities.

You ARV adjustment, for your purpose is probably fine, but appraising is more detailed. It's not an average as you consider age, depreciation, cost of replacement etc.

Actually, when comps get lean you can go out as far as a year and adjust for current market activities, a hotter market for example for a 3/2 but nothing recently sold due to high demand for that area, some properties in some neighborhoods don't ever hit the market, popular ones may be sold by word of mouth know to HOA members for example or members at the club.

One other aspect not mentioned is style, you should use a ranch for a ranch, tudor for tudor etc. but at times that can hard to match so select a style that is traditionally close to the subject, you don't want a berm home used for a tudor......in fact any underground or berm homes need another berm or underground comps.

You did a good job of putting your analysis together, IMO!!!

Zubair Khan · Answer

Hey Michael can you tell me the database you were talking about in one post to pull comps?

Carlos Flores · Answer

You may also want to look 3 months back if your buyer intends to rehab because in 3 more months appraisers will be looking back 6 months.  Adjust the look back as needed given the number of comps, time to get the subject on the retail market, etc.

Bill Gulley · Answer

Well put Steve and Michael, that's what I put in the terms of the sale. The real price paid or "economic value paid in terms of cash".

Samantha, looks like you are following an apprisal workbook.....keep reading, seller's concessions should be explained as well as financing concessions.

And another, depending on the location, a newer or more popular neighborhood may have higher land costs. You can see that as you work through the process on the improvements. The most expensive sale may be the exact same house in another neighborhood or newer section of the same and be more desireable,you can then adjust for the lot bringing the higher comp in line with your subject lot. That's why I suggest you continue with your analysis and also, consider the deal as Steve and Michael have mentioned....

Bill Gulley · Answer

Samantha, you're beggining to sound more like a student appraiser than an investor....LOL

I would not drop the comps based on what you have shown, or just because of the sale price, I would work through all five and look to those most similar that require the least adjustment considering all factors. You could end up with a value just under the high or above the lowest. Location, style, amenities, condition, time on the market, sale terms are other factors that influence value.

If you had 8 or 10 comps, dropping highs and lows initially will allow enough to work from. Just keep looking at all variables and selecting the most similar.

Samantha M. · Answer

Thanks for stopping by, I understand where you are coming from, but I think the numbers in this case might be different? Everyone of those comps is a house being delivered in retail condition to the market.

I removed any sort of "as is" sales, foreclosures, REO's, HUDs and from the MLS search. Wouldnt that make them apples to apples? The whole point of dropping the low and the high is to get a better representation of comp sold price range. It removes the highest value sold and the lowest. Its great that a house in that neighborhood sold for $119,000 but that was the highest, and it may not be likely for an investor, thats why I dropped it to get a more conservative estimate.

Samantha M. · Answer

Thanks again for the indepth reply Bill, will definitely mediate on that information.

With that being said I had an additional question. When I pull sold comps for determining ARV I typically drop the lowest and the highest to get a better range is that something that you agree with?

For instance in the image below: $106,500 is the low and $119,000 is the high. For the final comp report I would remove these two because they are the high and low in the range

Pulling Comps: Am I doing it correctly?

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