Have you ever wondered just how sellers set list prices on their properties? The majority of them use the Multiple Listing Service (MLS) to find the perfect price point. Because ever-changing property values are relative to a local market and thus difficult to determine, pulling real estate comps has become a respected method of setting list prices.
If you are a real estate investor, you should know how to run comps on the MLS. Knowing how to do so can help you set list prices backed with research and data, giving you the confidence and accuracy needed to sell a property.
[ Thinking about investing in real estate? Register to attend a FREE online real estate class and learn how to get started investing in real estate. ]
What Are Real Estate Comps?
A real estate comp is a home similar to the one you are trying to buy or sell and can be used to help determine the price or value of the property. Real estate comps (or comparables) can be pulled from data on the MLS, a database of properties that have been sold or are currently for sale in a given area. Licensed real estate agents can access this system to identify similar properties within a neighborhood to draw comparisons. When pulling MLS comps, agents typically search for listings that are similar in size, condition, features, and age. Ideally, these listings are sold within the past six months and within a one-mile radius. In rural areas where distances from property to property tend to increase, a five-mile radius is acceptable. The MLS also provides data points such as listing prices, sale prices, and number of days on the market.
Types of Comps
When looking at comparable home values, there are a few different categories that you can examine. These include home sales, pending sales, current homes for sale in the area, expired listings, and withdrawn properties. The values of each of these different listings can help you gauge what listed values of the similar properties in your area successfully got off the market. The expired and withdrawn properties in your area can help inform you of what listed prices were unsuccessful.
Why Use MLS Comps?
MLS comparables are used for many reasons, but perhaps the most prominent use (for sellers) is in determining a property’s listing price. By comparing the data of recently sold homes in a given market, sellers can identify which properties are the most similar to their own. Having access to current market data through the MLS allows a seller to determine a listing price that is fair yet competitive.
[For a detailed discussion on how comparable home sales are used for buying investment properties, be sure to read this article.]
Picking the correct price point is critical to a successful deal. Because pricing properties is subjective by nature, this advanced technique requires a considerable amount of effort. An ideal price should maximize a seller’s profits without turning off potential buyers. Based on their perception of home values in that neighborhood, the latter can occur if homebuyers feel that the property is overpriced.
MLS comp sales also provide listing and selling dates, which indicate the number of days properties remain on the market. This means that an investor can estimate how long it will take to sell a property before striking up an investment deal. This information also allows them to factor holding costs into their deal analysis more accurately.
Additionally, comps are a valuable tool for devising a marketing strategy. By comparing similar properties that have sold within the past few months, sellers can identify which features make their listing unique from others. These points can be highlighted in photographs, marketing materials, and in-person at open houses.
Who Uses Real Estate Comps & How
Almost everyone in the real estate industry can learn to use MLS comps to their advantage. There is a lot to learn from looking at similar properties, no matter which side of the transaction someone is on—that goes for buyers, sellers, agents, and more. Here are just some of the ways real estate professionals rely on comparable housing data:
-
Sellers: MLS comps are a key component in the home selling process. Not only do they clue sellers in on how much to list a property for, but they also point to which features should be highlighted in the listing. Sellers should always pull comparable home data when prepping their property for the market, especially when setting a price. Those working with or without an agent will find comparable home data invaluable to the home selling process.
-
Buyers: It is not uncommon for buyers to start pulling comps without even realizing it. Researching similar properties to compare prices, property values, amenities, and more technically counts as looking at comparable properties. This part of the home buying process can help buyers ensure they get a fair price for their property and even help during the negotiation process. Buyers should research comps before ever making an offer, as they can help to avoid overpaying for a given home.
-
Appraisers: Appraisers use comparable properties all the time when determining the value of a property. MLS comps provide a baseline of similar homes in the area, allowing appraisers to conduct their work more efficiently. In fact, checking the MLS is often one of the first steps when appraising a property. This process is crucial for both buyers and sellers, ensuring homes are priced fairly for both parties.
-
Real Estate Agents: Comparable properties are a key component of a real estate agent’s day to day responsibilities. Agents rely on the MLS to provide the best services to buyers and sellers; they even use it to monitor local trends in the area. For example, MLS comps might reveal which features or home sizes are gaining popularity within a specific neighborhood. This can help the agent set up listings to sell properties quickly or even frame the buyer’s expectations when starting the search for a new home.
How To Find Real Estate Comps
Knowing how to find comps on the MLS is undoubtedly a valuable skill for those who wish to run an accurate, up-to-date comparative market analysis. However, only licensed real estate agents and appraisers are authorized to access the MLS, making it tricky for other real estate professionals to run comps independently.
Many real estate investors have found workarounds to this challenge, mainly through symbiotic relationships with licensed agents. For example, an investor might rely on an agent to pull MLS comps on their behalf in exchange for referrals to clients and listings. Other investors who understand the value of pulling comps and would rather put in the elbow grease themselves might obtain their own real estate licenses. Click here for more information on whether or not obtaining a real estate license is beneficial to your investing business.
Comparative Market Analysis
A comparative market analysis includes key information about the property and three to five similar homes in the neighborhood. The report will list crucial features of the homes, including address, square footage, sale price, and descriptions of the floor plans. These reports will also adjust prices based on differences in key features, for example extra rooms or bathrooms. Many real estate agents and real estate brokers use these reports to provide buyers and sellers with crucial market details. As an investor, they can help you ensure the correct sale and listing price when navigating new deals. If you are interested in creating your own format for a comparative market analysis, consider using a spreadsheet in Excel or a similar software. While agents and brokers often plug numbers into a program, there is nothing saying you can’t do the same with your analyses.
Using Comps To Determine Home Value
You can use comps in your home’s area to determine your own home’s value. Use the MLS to pull the values of homes with the same number of bedrooms and bathrooms. Then, use their values to help guide your understanding of the value of your home. Be sure to take any differences in the properties into account. If your home has any distinguishing features such as a pool or upgraded appliances, they will most likely increase your home’s value compared to other similar properties in the neighborhood. Likewise, if your home is missing features that other homes in the area possess, you should expect your value to be less. Also, keep in mind that using comps to determine your home value is not the exact way an appraiser will calculate the home’s value, but this process can be a good way to get an idea of what to expect.
[ Learning how to invest in real estate doesn’t have to be hard! Our online real estate investing class has everything you need to shorten the learning curve and start investing in real estate in your area. ]
What To Consider When Finding Real Estate Comps
Finding real estate comparables can be a daunting process for beginners, but knowing what to look for beforehand will help you accurately determine which homes qualify. Here are a few essential things to consider when looking for real estate comparables:
-
Location: Ideally, when you are looking for real estate comps, smaller distances will provide more accurate representations of homes in your area. Try to narrow your search to about a quarter to half-mile radius from your home.
-
Price Per Square Foot: Find the price per square foot by dividing the sale price of a property by its square footage and compare that number to your own price per square foot.
-
Timeframe of Sale: Try to only focus on homes that have been sold within a 3 to 6 month period. This may be difficult if you have a market that changes rapidly. If this is the case, you may want to consider focusing on an even smaller timeframe.
-
Property Size: Accurate real estate comparables should be within 200-300 square feet of your property.
-
Condition: Try to find properties in relatively the same condition, however, be sure to factor in any renovations and improvements.
-
Number of Rooms: Be sure to only search for homes with an equal number of bedrooms and bathrooms your property.
-
Age of the Property: Accurate real estate comparables should be properties that have been built around the same time as yours.
-
Neighborhood Features: Real estate comps should have the same neighborhood features such as distance to stores, waterfronts, and views. Also, keep in mind the local schools and access to public transportation.
If you want to find comps in your area without having to gain access to the MLS, these online resources can be good tools to help you do so:
-
Zillow:You can search within a city to find your neighborhood, and zoom in to find your own property. Here, you can see nearby listings of properties including the number of bedrooms, bathrooms, and pricing. Compare similar homes to your own to get an estimate of how much your property is worth.
-
Trulia:You can find public records of properties that have been sold near your address on Trulia. This site offers comps based on proximity to your home, property type, square footage, the number of bedrooms and bathrooms, and when and how much they sold for.
-
Realtor.com:Here you can find information on recently sold properties in your city. You can find comps based on the property type, square footage, and the age of the property.
-
Redfin:Narrow down the “listing status” of nearby properties in your city to “sold” and find comps that have sold from one week ago to up to three years ago. You can set property facts filters to discover comps that more closely resemble your own home’s features.
How To Run Comps On MLS
It is important to understand how comps are pulled, regardless of how you gain access to the MLS. Having a credible method for conducting market research will help justify offers and listing prices on properties. The right process can also make your research run smoothly and more efficiently.
Investors should always start by looking at properties that have recently sold. Currently, properties are typically not the most accurate representation of property value on the market, as they could be over or underpriced to sell. It is also smart to drive by the locations of certain properties to get a better idea of the area and surrounding amenities (both taken into consideration when setting a list price). Investors also need to be careful to study the listing photos presented on the MLS. These should reveal the types of appliances, flooring, and fixtures that homebuyers might expect at that price point.
Real estate professionals should keep a few other factors in mind when running comps on the MLS. Below you will find an overview of what to look for when conducting a competitive market analysis:
-
Size up the neighborhood: Location is a key variable used to determine property value, as neighborhood desirability and attractiveness tend to have a strong correlation with listing prices. Google Maps and Google Street View can be great tools to note the neighborhood’s aesthetic appeal and proximity to amenities.
-
Check estimates and forecasts: Use free tools such as Zillow and HouseCanary to determine the property’s estimated value and listing price, and obtain a forecast of how much values will increase or decrease in the coming years. Because so many homebuyers and sellers access free websites to check property prices and values, this information provides insight into the general public’s expectation of what property prices will look like in certain markets.
-
Assess the property listing: Next, create a list of the property’s qualities, such as location within the neighborhood, size, condition, number of rooms, and any distinctive features. This information will become useful in the next step: finding comparable properties.
-
Start pulling MLS comps: This is the step where you will need the help of a real estate agent. Upon logging into the MLS, the agent will look for properties that have been recently sold, or have sales pending, in the same neighborhood. They will then narrow down the search criteria to properties with features as close as possible to the list of features identified in the previous step. This can include square footage, number of bedrooms and baths, age, and lot size.
-
Calculate price per square foot: Once several MLS comps have been pulled, the average price per square foot can be calculated. This can be done by dividing the sale price by the square footage for each comp and then finding the average between all comps. Click here for further instructions on how to calculate square footage for your property. After crunching these numbers, the average price per square foot can be multiplied by the total square footage of the property in question. The resulting number provides the approximate value for your listing based on neighborhood comparisons. You can use this example to practice estimating your average price per square foot.
-
Appraise property condition: Once you have calculated the initial property value, be sure to take into consideration aspects such as any issues with the property, as well as any special features or upgrades that have been made that were difficult to compare.
-
Set your listing price: Now that extensive research has been conducted, it is time to set your listing price for your property. This step should take several factors into consideration, such as the local market, property features, and value estimate. In addition, the listing price should reflect how your property sizes up to the competition. At the end of the day, sellers should feel confident about their listing price if the decision is backed up by solid research using accurate data.
Real Estate Comps Template
It’s not a good idea to rely on your memory alone when searching for comparable properties. In fact, I would advise against anything less than a detailed spreadsheet. Whether you are estimating the value of a potential deal or trying to determine a listing price on an existing property, accuracy is crucial when looking at comps. Start a new spreadsheet using Google Sheets or Microsoft Excel. Place the property address you are using as a baseline in one column, with others to follow. Then organize your spreadsheet with the following rows:
-
MLS Number (If Applicable)
-
Status
-
Square Footage
-
Lot Size
-
Year Built
-
List Price & Date
-
Sale Price & Date
-
Number of Bedrooms
-
Number of Bathrooms
-
Other Property Characteristics & Amenities (Garage, Basement, Etc.)
The above information is a great starting point when analyzing comparable properties, and the side-by-side format will allow you to compare relevant information directly. You can add additional rows for property descriptions, tax values, and more as you see fit. I recommend walking through an example yourself and then saving the file as a template for future use. If you want a more visual example, try checking out the examples provided by SampleTemplates or The Balance.
Free Real Estate Comps
If you do not have access to the MLS, there are still several options for accessing comparable properties. In fact, many free public websites use data from the MLS and have several search features that are helpful when researching a given area. Consider the following websites next time you look for house comps:
-
Zillow: Zillow has great features for estimating property value and list price, but this website is also a good resource when searching for comps. Zillow allows investors to search for properties by price, bedroom, type and more making this a great tool for identifying similar homes.
-
Redfin: Redfin has a “Find a Home” feature with information on properties that were sold within the last 3 years. While recent listings are the most helpful when searching for comps, the added information can be helpful to investors who have trouble finding similar properties.
-
Trulia: Trulia can provide investors with detailed information on properties based on property type, purchase price, date sold and more. Investors can also navigate a map to find properties in nearby neighborhoods.
-
Property Shark: This is yet another tool with information on recently sold properties within an area. One of the best parts is that it does not require investors to input any contact information when searching for properties, making it easier than ever to do a quick search on a neighborhood.
Summary
Real estate prices are based on several factors, including supply, demand, location, condition, and property features and amenities. Because these values can be relative and ever-changing, comparable properties on the MLS are a respected method for setting fair and competitive list prices. Buyers can even use comparable properties as they determine the correct offer price for a home. Overall, real estate comps are a valuable resource for real estate professionals no matter which side of a deal they are on.
Ready to start taking advantage of the current opportunities in the real estate market?
Click the banner below to take a 90-minute online training class and get started learning how to invest in today’s real estate market!
