What are real estate comps?

What are comps in real estate?

Comps (short for “comparables”) are recently sold homes that are similar to a home you’re considering buying or selling in the area. Comps are used by buyers, sellers, real estate agents and appraisers to help assess the value of a particular home.

Real estate comps are useful to buyers, sellers, agents and appraisers.

One important distinction to make as you investigate comps is between value and price. Value is how much the home is worth to potential buyers in the current market; price is how much the home is actually listed for. The goal for a buyer is to find a home with a price that’s similar to its value, and reviewing comps can help.

How real estate comps work for buyers

Buyers can use comps to gain a better understanding of their local market as they start the homebuying process. One way to do this is to track the prices of homes that recently hit the market.

When you work with a real estate agent, you’ll have access to multiple listing services (MLS), which are helpful tools for observing local markets. An MLS is a database of all homes listed and sold in your area that includes details like the year the home was built and upgrades made by the seller. You can set up email alerts for homes similar to what you’re looking for, and the system will send you a daily or weekly digest of home sales in a particular area.

As you observe the market, take note of how quickly homes are marked as “pending” (or “sale pending”). This can indicate the kind of market (buyer’s or seller's) you’re in, which can impact real estate prices and availability. Once you’ve found the right home for you, you can use info from comps to make realistic offers that make sense in the current market.

How real estate comps work for sellers

Sellers can use comps to assess the housing market and choose fair listing prices for their properties. It can be difficult to estimate the value of a home you've lived in for years — in these cases, we often grow emotionally attached.

A seller’s agent can offer unbiased listing recommendations based on local comps. They can also offer expertise regarding negotiations. For example, your agent may recommend a starting price that’s a little higher than the comps to create some wiggle room in the negotiation process.

How real estate comps work for real estate agents

Real estate agents use comps to conduct a comparative market analysis (CMA). A CMA is an examination of recently sold local properties that are similar to a home you’re interested in buying or selling. This helps an agent determine the market value of your property.

Your real estate agent can pull comps and other relevant info from an MLS database.

Say you find a particular home you want to buy. Before you submit an offer to purchase, your real estate agent will review a list of recently sold properties (within the past three to six months) in that area.

These homes will also be similar in terms of square footage, number of bedrooms and other features. Your agent can then advise you on how much to offer based on the comps and general trends in the housing market.

For example, if the comps sold at $155 to $177 per square foot, your agent may recommend offering $165 per square foot. On a 2,000-square-foot home, that’s an offer price of $330,000.

Real estate agents will also use a CMA to help you price your home appropriately if you’re looking to sell. Too high a price for the market value of the home could keep potential buyers from viewing the property. Keep in mind that you might not be able to sell your home for what you bought it for, depending on the market.

How real estate comps work for appraisers

The purpose of a home appraisal is to determine the estimated value of the property. Appraisers first examine the condition of the home, then they compare the property with similar homes in the area. These comps influence the final appraised value.

Since market conditions are ever-changing, it’s important to note that the appraisal report only shows the value of the home at a single point in time.

How to find real estate comps

Most listing sites let you plug in certain criteria for the home you want to buy. You can search for houses by neighborhood, square footage, number of bedrooms and more. Once you put in all your must-haves, the database will produce a list of homes that fit all or most of your criteria.

When you find a home that checks all your boxes, you can compare the price with what similar homes sold for in the past few months. Though no two homes are exactly the same, you can still put your favorite home up against the comps to see if it's a good value for the price.

Your real estate agent can also offer market expertise beyond what you’ll find on a listing database. For example, if you find a home you like that’s priced above the comps, your agent may disclose that it’s in a more in-demand school district.

Bottom line

Comps in real estate can help you assess the true value of a home you’re interested in buying or selling. If you’re buying a home, it’s important to understand how a comparative market analysis works — you can do your own market research, but you can also rely on the expertise of your real estate agent, who can explain current market dynamics. This can help you secure the right home at the right price for you.