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The phrase “pulling comps” gets a lot of buzz in the real estate world –– and for good reason! Comps, or comparable properties, help create a baseline valuation for a home, which in turn influences things like the list price, purchase offer, appraisal, and more. Because comps hold so much weight in the industry, real estate professionals often run a Comparative Market Analysis (CMA) when evaluating a property.
But because they’re not standardized, not all CMA reports are created equal. Before entering into any type of real estate transaction, it’s important to understand what qualifies as a good comp and a good CMA report. Let’s start from the beginning.
The term “comps” usually refers to recently sold properties that have similarities to one another in location, size, and features. However, in markets where sales are slim or where values are rapidly changing, comps may be expanded to include for-sale and pending properties as well.
Comps are most valuable when they hold the closest similarities to the property being evaluated. The idea is to try to compare “apples to apples”, so to speak. As such, a good comp can usually be qualified by the following indicators:
All of these elements must be balanced against one another to determine the best comps. For example, which is a closer indicator of value: a comp across the street without renovations that sold six months ago or a comp three neighborhoods over with similar updates that sold last month? That’s where the Comparative Market Analysis comes into play.
A Comparative Market Analysis (CMA) is a report that looks at three to five comps side-by-side to help predict a home’s worth. Because no two homes are ever completely equal, it’s important to analyze several comps in tandem.
CMA data is pulled from the Multiple Listing Service (MLS). Anyone with access to the MLS can create a CMA. But that doesn’t mean that every CMA is accurate. Some CMAs aggregated by algorithms fail to take relevant conditions into account.
A good CMA should provide the following information (usually delivered in a table format):
Remember, when it comes to CMAs, there isn’t an official “comps standard” or set of rules that everyone is required to follow, so results could vary. Therefore, it’s important to meticulously choose the best-available properties before making any significant transaction decisions.
While houses traditionally have certain value-identifying commonalities, the range in a home’s value can vary widely based on subjective factors that reflect nothing more than buyer preferences. Factors like demand and market fluctuations add to that constant variation as well.
Comps and CMA reports are important because they help to pinpoint a value within that constantly flexing range by determining a Fair Market Value (FMV). Fair Market Value is the worth of a home as it stands under the current market conditions. Unlike sales histories and prior appraisals, Fair Market Value predicts what a buyer would likely pay in the “fair market” today. The only way to estimate FMV is by looking at current comparable sales.
Comps and CMA reports can also help project the After Repair Value (ARV) for investors. An investor who intends to flip a home may want to purchase a distressed property for under market value, if possible. Before committing, they’ll also want to project how much the property will be worth after all updates are completed. Running a CMA that compares homes with similar renovations will help determine ARV. That number tells the investor whether or not the potential profits are enough to warrant the purchase and repair costs.
Comps and CMA reports are used by people and professionals at almost every stage of a property transaction.
Understanding what makes a good comp and good CMA is important at every stage. According to Fannie Mae, 12% to 14% of appraisals come back undervalued; to appeal those appraisals, sellers need to be able to analyze good comps. Likewise, the National Taxpayers Union Foundation estimates that anywhere between 30% and 60% of homes are over-assessed for taxes; buyers looking to appeal those assessments will need good comps as well.
As with most things these days, technology has made great strides regarding access, accuracy, and ease-of-use. In the past, you had to hire a professional to pull comps before the sale of your home. Today, pulling a property comp to estimate your house’s value is as simple as entering your address into an online form.
But as previously mentioned, it is important to consider the source before trusting a CMA. Local real estate agents routinely scoff at the CMAs obtained from sources like Zillow, Redfin, and Realtor.com; the data often comes back skewed by whatever marker of a “good comp” the algorithm favored, which isn’t necessarily a reflection of true FMV for the area.
Some buyers and sellers choose to pull their own comps by looking at public records of recent sales. While this could be a good way to look at numbers, that method will still need to be cross-referenced against listing info to take more subjective elements (like condition) into account.
The New Western Comp System offers a hybrid alternative for buyers and sellers who want the ease of online data combined with real-world wisdom that can only come from hands-on interfacers. The New Western Comp System allows users to pick-and-choose the properties they’d like to compare with their own; they may also select as many properties as they’d like to compare. New Western Comps can be customized to compare features that are relevant to the user, which produces more accurate, user-specific results.
At the end of the day, if you’re having trouble determining whether or not a CMA reflects the true value of your home, consider seeking the advice of someone who has experience pulling comps, such as a professional appraiser. If you don’t personally know anyone who could help you, there are plenty of online resources and tips to ensure you are properly pulling your report.
While there are several investment comp systems available, we believe that New Western stands out from the crowd. Our approach is unique to the market in that it provides cutting-edge tech that calculates and compares financial options and gives users the ability to save and print reports. This innovation weighs the potential of user success through specific investment strategies. Whether investors plan to hold or flip their property, with the New Western Comp System, they can compare the outcomes of strategies that use cash, bridge loans, or conventional loans and consider their options.
Not only does New Western offer some of the best technological resources, we also showcase investment properties that have been pre-screened to earn a substantial profit. New Western properties aren’t even made public on the MLS. Our property lists are absolutely exclusive, so that means our comp reports are even that much more significant!
A head start on a fantastic profit all starts with the right resources; with our Investor App and Comp System, we provide all the tools you need to succeed. To start your journey, get your personalized property list here.
Disclaimer: The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only.