When you put in an offer on a house you should look at the comparables. What is an agent referring to when they talk about getting the comparables or comps? Here is an explanation as to what compables are for your next home:
What are “comps”? Comps is short for comparables. Your realtor should pull the latest homes that have sold in the last 6 months which are similar in size and condition to the home you are looking to purchase. The comparables should be close to the home you want to put an offer in on.. Homes that are in the same subdivision or on the same lake are the best comparables. The further you go away from the house the less reliable they are. Appraiser will use the sold house comparables that are closest to the subject house you are buying. Your agent should do the same thing.
Anybody can usually find a comp to support the price of the home. But that is not what you are trying to do. You are trying to compare the house you want to recent sold homes nearby that are similar in style and shape.
Read them over and see what they are sold for and what type of condition the home was in. This is to give you an idea of what the house you are looking at is worth. That way, you can decide for yourself how similar they really are.
Sometimes what you think the house is worth and what I think the house is worth are different. Sometimes buyers automatically go to the low side of the comps. Unfortunately in this hot sellers market, many homes are being priced on the high end of the scale and they are selling in the higher range.
The biggest issue I see with buyers looking at comps is that they discount the size of the house or the condition of the home. It is very important to compare apples to apples. Condition and updates of the house is very important. You can’t take a home that you are looking at in excellent condition and compare it to a home that needs a lot of work. Let’s say a house that needed a kitchen upgrade and new carpet sold for $300,000. You can’t bid $300,000 on the house that is listed at $335,000 and has an updated kitchen and flooring. You won’t get the house. You are not making a sound comparison. A new kitchen would cost you $30,000- $60,000 to put in. Plus carpeting is probably going to cost you $10,000. So just because the un-updated house sold for $300,000 and was the same size doesn’t make your house you like worth the same. It is worth $40,000 due to the upgrades. In this case the comparable supports the $335,000 price. Some buyers get blinded by the low price and think they can steal the other house. Unfortunately the buyer that bids low based on that information won’t get the house. You have to be realistic. You can’t take that home comparable and then compare to the excellent house you are buying and then decide only to pay the lower house price based on the house that needs a lot of work.
You are not going to win the house or bid if there are multiple offer situations. The seller is going to look at your offer as if you are crazy. Condition matters. Then the next biggest mistake buyers make is they don’t take into account the size. Let’s say that $300,000 home is in the same condition as the $335,000 home but it is 300 square foot smaller. The $300,000 home is 2000 square foot which works out to a sales price of $150 a square foot. So if you multiple $150 a square foot sale price by 2300 square foot house you get a price of $245,000. That supports the list price of $235,000. If all other things were similar the price per square foot would support the purchase price. In fact you are getting it at a little deal.
Many times buyers don’t take the condition or price per square foot into account. You have to if you truly want the truth and right offer price. I want you to get the home you like at a good price but you have to be realistic. Over the years I have dealt with buyers that are unrealistic about comparables. They end up low balling the offer and the offer gets rejected. Many times the buyer loses house after house. Then they switch realtors because they blame it on the realtor instead taking the blame themselves for losing the houses. I have seen buyers never get a home because the housing prices rise and the buyer can no longer afford the size of the house they want. All because they ignored the comps and their realtors advice.
Comparables are important. Even if the comps say it should be lower, it may sell at the list price or higher. It all depends on the buyers and if they feel it is worth it. You may not think it is worth it, but the next buyer might pay the price. So the option of sitting back and waiting for the price to drop may not work.
Like all negotiations the more money you offer, the more likely the seller will accept. But the bottom line is you decide what to offer. I will put in any offer you want, but in this sellers market, if the house is in good condition to excellent condition you want to be within 5% of the list price. Sometime you have to offer higher than list price to get the home.
Comparables are the basis on what to offer on a home. I hope this explains what “comps” and “comparables” are and how you should use them. I hope your home buying experience goes smoothly. Feel free to call me to get started finding your next home. My cell is 248.310.6239. Remember we offer a great home buyers bonus too!