The Basic Art of Comping Single Family Properties
Are you planning to buy or sell a property? One of the most important steps in the process is getting an appraisal. Coming is necessary to determine the market value of a property, and they take into account various factors that can affect its worth, and income potential for investors looking to flip a property for profit. Just like with art, there may be rules, but there is a lot of finessing that may need to be done when you do not have similar properties sold within the last three months. Ideally properties sold no more than six months ago are used for comps considering the rapid and constant changes of the market in the last decade.
Here are some comping rules you should keep in mind when valuing a property:
Same Subdivision: The property being evaluated should be within the same subdivision as the comparable properties. This helps ensure that the location and amenities of the properties being compared are similar.
+/- 200 Square Feet: The property should be compared with those that are within 200 square feet of the same size.
Comp it with at least 2 other similar properties: Appraisers should compare the subject property with at least two other similar properties to determine its value. If you’re comping in neighborhoods that have cookie-cutter developments repeating floorplans, a perfect comp would be the exact same floor plan.
Same property type: The properties being compared should be of the same property type. For example, if the subject property is a ranch style, the comparable properties should also be ranch style homes. 1 story does not compare to 2 story.
Do not cross any major roads: avoid comparing properties that are on opposite sides of a major road or highway. This can have a significant impact on the value of the property.
Builds within 5 years: The comparable properties should have been constructed within five years of the subject property.
Adjustments: Adjustments are made for differences between the subject property and the comparable properties. For example, if a comparable property has one more bedroom than the subject property, an adjustment will be made to account for this difference.
Traffic and Commercial: Properties that are located on busy streets or near commercial areas may be worth less than those in quiet residential neighborhoods. Appraisers should take into account the impact of traffic and commercial development on the value of the subject property.
Basement and Guest House: If the subject property has a basement or a guest house, the appraiser should only give 50% of the value of the square footage of these areas.
Know your exit strategy: When buying or selling a property, it is important to have an exit strategy in mind. This can help ensure that you make a sound investment and get a fair price for the property.
Comp the deals on legal not illegal practice: It is important to follow legal practices when comparing properties. For example, renting out every part of a single-family home from the shed to the garage for tenants to live in is most likely illegal. Appraisers should compare the property as just a single family home, not as a triplex.
Though it is an art, it is important to know these rules to ensure that you get a fair and accurate assessment of your property value when considering it for a flip. If you overestimate the value you could lose a lot of money. By following these general rules, you can make informed decisions and avoid making costly mistakes.
