Understanding Comps

real estate compsComps – or recent comparable sales – give real estate practitioners and appraisers the information they need to price a home at fair-market value. Though comparable data are clear-cut to a professional, how many sellers understand the various tangibles and intangibles that inform these comparisons?

If the gap between seller perception and appraiser opinion is any indication, the answer is few. As a recent Quicken Loans Home Price Perception Index (HPPI) report shows, homeowner estimates averaged 2 percent higher than those of appraisers – a considerable margin in markets with ballooning home values, says Quicken Loans Chief Economist Bob Walters.

“It may not seem like homeowners assuming their home’s value is 2 percent higher than appraisers’ opinions is significant, but it could make a huge difference in metro areas with higher average home values,” Walters explains.

But this broad brush stroke doesn’t paint a clear picture of every metro area. In Houston, for example, which this summer marked the longest streak of year-over-year gains, seller perceptions are more closely aligned with those of professionals.

In those instances of disconnect, the onus is on the agent to educate the seller. This is accomplished by helping sellers “visualize the data,” presented on one page if possible, and in some cases applying a simple, straightforward formula.

Breaking down the factors that play a role can also be beneficial for the seller. Market activity generally determines the window, but comparable sales can stretch back one month to three months or more.

Square footage, a go-to data set for both real estate agents and appraisers, is also important. Sellers can expect their home to be evaluated against properties with similar square footage, as well as a like number of bedrooms and bathrooms. Real estate agents may take into account some of the more ambiguous features the appraiser may not consider, as well.

And because no two sellers are alike, individual circumstances also warrant consideration.

These and other facets, like age, location, lot size, workmanship and energy-efficiency, can all serve as means for comparison. Age, in particular, can be a key variable, because it can indicate the condition (or decrepitude) of the home. According to Trulia, comparables for age are typically pulled within a five-year range.

For sellers, bear in mind comparable data reflect the activities of both buyers and sellers, no matter which the market currently favors. And as Warren Buffett so eloquently sums up: “Price is what you pay. Value is what you get.”

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Categories: Sellers Tips