​The art and science of figuring out comp prices.

The art and science of figuring out a comparable or comp price for a house.

Before I get too far into the weeds here I want to talk about why comps are so very important to real estate investors. For starters, without being able to determine a comp value, you have exactly zero ability to determine if a sale price is a bargain or not. You also have no idea what you can do with the house without a reasonable comp value. Can you afford to rehab the house? Is there enough spread in this deal to wholesale the house? Should you keep the house with the equity and rent it out? All of these answers are dependent upon the actual market value of the house, not the price you paid for it. Without a real legitimate comp value, you can’t figure out what you exit strategy.

Let’s be honest here, if science could actually pull comps, then some computer program would already exist. You would just enter the data from your house, submit, and the computer would tell you what your house will be worth in great condition.

For me to accept a value as a legitimate comparable value for the house that I am buying, I need a few things. First off, I need a minimum of three houses sold within the last two to three months. Notice that I said sold, not active, not pending sales. Sold and sold only. I do reject certain sold house as potential comps. Any house that was sold as a short sale, a foreclosure, of any other non-standard sale like one between two family members or other non arms length transactions.

For me to accept a house as a comp house, that house needs to be similar to my house in a number of ways. The comp house has to be in the same school district, same zip code, same neighborhood, and ideally the same sub-division. The comp house cannot be on the other side of a highway, across a bridge, or on the other side of a river. Anything that acts as a natural barrier to foot traffic separates areas for the purposes of pulling comps.

A comp house needs to be the same style as the house that I am looking at. If my house is brick, the comp house needs to be brick. The comp house needs to be within 10%, plus or minus, of the overall size of the house that I am looking at. My target house also has to be the same style as the house that I am using as a comp. A ranch house is not a comp for a Cape Cod style house. Do not make this misake.

Another thing to keep in mind is that your house and your comp house have to have the same types of amenities. If your house has a pool, your comp house has to have a pool. If your house has a garage, your comp house has to have a garage.

Even with all of these criteria, there is still a bit of art to pulling a proper comp.

I hope that helps

Josh