Sales Comparables
Sales comps can be very helpful when you are trying to determine the value of a property. However, they are not just going to come right out and say, "Your house is worth $150,000." That would be very nice, but somewhat unrealistic. On the other hand, sales comps are fairly easy to comprehend.
To use them, first gather as many recent sales of comparable or similar properties as you can in the neighborhood of your property. By recent, try to find sales no more than 1 year old. Sales over a year old may no longer be relevant due to changes in the economy, the real estate market, etc.
By similar properties, try to find properties with similar square footage (living space), lot size (actual size of property — house, yard, etc.), same number of bedrooms and bathrooms, and the same age or year built. Plus, if your property has a view or a pool, compare only to properties with the same. That view costs extra, especially in places like California.
And, most importantly, compare ONLY to properties with the same use code. In other words, if you live in a condominium, only compare to other condos. The same goes for duplexes, single-family detached homes, etc. You must compare apples to apples, otherwise, your comps will not be accurate.
Finally, try to find comps as close to your property as possible. Different neighborhoods have different characteristics such as number of public services, stores, churches, parks, etc. This, plus the average age of the neighborhood can significantly affect the overall market value.
Once you have gathered several comparable sales, note the sale prices. In a perfect world, the sale prices should all be similar. If this happens, that should give you a good indication of your property's value. However, if you find a comparable sale price that is quite different from the others, check it out further. Drive by the home and look at it. In cases where the price is lower, perhaps it was foreclosed upon or damaged by fire, flood, or earthquake. Call the Realtor who sold it, if possible. Perhaps the owners had to sell quickly due to circumstances beyond their control and therefore, sold at a lower price. If the price is higher, perhaps improvements such as a pool were made that have not yet been recorded.
If you encounter a dissimilar sale price due to an extraordinary circumstance such as one of these, you may not want to consider that sale when trying to determine your property's value. That part is up to you.
Another way to compare property value using sales comps is by cost per square foot. This allows you to compare your property to properties of varying square footages. Simply take the sale price of a comp and divide by the comp's square footage. This will give you that comp's cost per square foot. Do this for several properties and average the results. You can then multiply the average cost per square foot by the square footage of your property to get an indication of your property's value.
It's also a good idea to develop a range of square footage costs using comparable properties. That way, you know where in the spectrum your property falls. However, be aware that this method of calculating cost per square foot does not take into account lot size, date sold or other characteristics such as pool or view and should only be used as a basis of comparison when looking at properties of similar lot size, date sold and characteristics.
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