COMPS - Comparable Properties

I began writing a different blog today; one on the seminars, books and tapes available for inexperienced real estate investors to make one rich overnight. I realized in trying to put it together that the most abused term was "COMP". People are constantly calling me to run "COMPS" for a property that they are interested in, and for a property I have never seen. I can send "sold" listings for an area, but in no way do they represent "COMPS".

What should a "COMP" be? First, it should have sold, if possible, in the last six months. Second, it should be in close proximity to the subject property. Third, it should be a similar property. Then what?

I like to visit the subject property. (I will be using a row house in this example.) Does the property have a new roof? What is the condition of the yard? The alley walls? The back of the house? The front of the house? The kitchen? The bathroom? The water heater? The heater? The plumbing? The electric? Is there air conditioning? Is the basement finished? What are the floor treatments? What condition are the walls and woodwork? Are the bedrooms well laid out and do they have closets? There are more things for which I am looking, but these questions give you an idea.

Next, I look on the MLS (Multiple Listing Service) to see what SOLD properties I can find to use as comps. Again, I look for properties, 3-5, selling in the last six months, close to the subject property and similar in size and features. Now, of course, there are some assumptions made based on the photos and descriptions. So, how do I come up with an asking price?

1. What have the comps sold for?
2. Was there a seller assist?
3. What was the initial asking price?
   
4. How many days was the property on the market (DOM)?
5. What does the comp have that the subject property does not have?

So, let us take a look at the following example comps.

SUBJECT PROPERTY DESCRIPTION

• House has been well kept by owner. The bricks are original and have been re-pointed; they are in good condition. The windows and doors are new throughout. The back, yard and alleyway walls have no issues. The house has central air. The heater and water heater are five years old. The plumbing is new PVC. The electric is modern. There are old hardwood floors in beautiful condition. The kitchen is older and a little worm, but usable. The bathroom is in mint condition, but old. The basement is cemented, and clean. There is a new rubber roof with a 15 year warranty.

Property A

• Sold: $150,000
• Seller Assist: $7,000
• Initial Price: $145,000
• Days on Market: 30
• Additional Features: new brick front, new windows and doors throughout, nicely finished basement, new hardwood floors in living room and dining room, modern kitchen (not high end), new bathroom, new PVC, new electric, new water heater and new heater, new hardwood floors, central air and a new roof with a 15 year warranty.

Property B

• Sold: $120,000
• Seller Assist: $0
• Initial Price: $145,000
• Days on Market: 145
  
• Additional Features: cement basement/walls need stucco, older re-pointed brick front, older windows and doors throughout, wall to wall carpeting and linoleum in the kitchen, newer kitchen, new bathroom, new PVC, new electric, 10 year old water heater and 5 year old heater, and a new roof with a 15 year warranty.

Property C

• Sold: $180,000
• Seller Assist: $12,000
• Initial Price: $175,000
• Days on Market: 90
  
• Additional Features: central air, beautifully finished basement with wet bar and powder room, new brick front, high end, new windows and doors throughout, high quality hardwood floors upstairs and downstairs, new, modern kitchen with stainless steel appliances and granite counter tops, new bathroom with spa tub and stall shower, powder room on the first floor, new PVC, new electric, new 100 gallon water heater, new heater, and a new roof with a 15 year warranty.

Now what do I do with the information? First, I determine the net price.

Property A

• Sold: $150,000
• Seller Assist: $7,000
• Net Price: $143,000

Property B

• Sold: $120,000
• Seller Assist: $0
• Net Price: $120,000

Property C

• Sold: $180,000
• Seller Assist: $12,000
• Net Price: $168,000

Second, I add or subtract from the Net Price.

Property A

• Net Price: $143,000
• Subtract $10,000 for new brick front (cost is about $20,000, but subject property has a nice front, which does not need to be replaced
• Subtract $3,000 for refinished basement
• Subtract $5,000 for new kitchen/partial credit
  
• Adjusted price = $125,000
  

Property B

• Net Price: $120,000
• Add $1,000 for basement stucco
• Add $3,250 for 9 windows and 2 new doors
• Add $3000 for hardwood floors
• Add $5000 for central air
• Add $600 for central air
• Adjusted price = $132,850
  

Property C

• Net Price: $168,000
• Subtract $10,000 for new brick front (cost is about $20,000, but subject property has a nice front, which does not need to be replaced
• Subtract $6,000 for refinished basement
• Subtract $8,000 for new kitchen/partial credit
• Subtract $4,000 for new powder room/partial credit
• Subtract $3,000 for better bathroom
  
• Subtract $2,000 for better windows and doors
• Adjusted price = $135,000

Now what should I do with these "Adjusted Prices"? I will weight them. I have determined that Property A is most similar, sold quickly suggesting it may have been appropriately priced and will make the following calculation. I will say that Properties B & C are equally, in their own way, similar to the subject property, but since C sold faster I will weight it slightly better than B.

Property A

• Adjusted price = $125,000 * 50% = $62,500
  

Property B

• Adjusted price = $132,850 * 20% = $26570
  

Property C

• Adjusted price = $135,000 * 30% = $40,500
• 
  

Now, I add the three weighted numbers together, I arrive at the following price: $129,570 with a range of $125,000 - $135,000. The example above is one way to run comparables and determine an asking price. There are other methods to determine an asking price and range, but this method is what works best for me.

I warn the consumer that when running comps on the national websites that many times the comps have not sold in an acceptable time frame, they are not close to the subject property and the conditions of the properties are not analyzed. The price range may not even be accurate, because, like in Philadelphia, prices can sometimes change quite dramatically just by crossing a street.