In real estate, comparable sales – “comps” for short – assist property sellers and their agents in determining a property’s appropriate listing price. The following covers such comps, including how real estate investors can find and properly use them.
Comparables are homes in the seller’s area that are similar to the seller’s property in size, location, condition, and features.
It is recommended that sellers use comps to arrive at the right listing price for their property – even if they are selling with the assistance of an agent. This way, they can ensure they are comfortable with the agent’s recommended listing price.
Comparables are primarily used by:
So, where do home sellers find comparables? There are a couple ways: through an agent or on their own.
For agents, the local MLS is typically the top source for comps because the findings are more apt to be accurate. Zillow has an agent directory that can help home sellers locate a longtime agent who knows their way around the listing service. Their familiarity with the area is an advantage, since it allows them to interpret comparables through the prism of local trends, square-foot price, and home value appreciation.
It is common for agents to give prospective clients a free CMA to try to gain their business.
For home sellers who opt for the DIY route, they can use:
It is recommended that those seeking real estate comps locate three or more similar homes that satisfactorily meets the following considerations:
It is typically the case that houses in one’s neighborhood vary widely, in terms of layouts, finish, and materials. Even when the properties are highly similar, no comparable is 100% the same.
Thus, to identify the optimal comps, here are some suggestions:
— Note home type. Compare apples to apples, or rather, condominiums to condominiums, or whatever the home type being sold is.
— Use sold homes only. Eschew properties that are up for sale or pending, as sellers can overprice their property then settle for markedly lower. Sellers also might price under market value to try to gain multiple offers.
— Pay attention to the listing description and photos. Not every improvement is apparent in photos. Having said that, photos should be scoured for comparable finishes, fixtures, appliances, and flooring and the like.
— Go see the comparable in person. There is nothing like seeing the comparable in person, which can also provide some idea of the interior condition.
— Take notes. After all, listing descriptions and photos sometimes go missing or are removed once homes are sold. So, take copious and careful notes when researching comps.
— Check out the area. Be certain to learn about an area’s details, such as its proximity to a bus route or a high-traffic road.
— Set a price. Fold in multiple data points from a number of sources, combining MLS comps with Zillow data and agent info, if the latter is being used.
— Use an appraiser. An appraiser will provide an objective appraisal of one’s home’s value.
— Account for the season. Note that houses do sell faster in spring and early summer. Thus, be mindful of seasonality when pricing one’s home.
There are a number of ways to enter the real estate market, which remains popular as an investment for a number of reasons, including the abundance of investment types, steady passive income, possible tax benefits and property appreciation, protection from inflation and stock market volatility, and more.
In addition to real estate private equity (PE), which generally targets institutions and high-net-worth individuals, there are what are called real estate investment trusts (REITs). These opportunities, which are often likened to mutual funds, work particularly well for those who seek to passively own real estate with no responsibility for the property themselves. Offerings often involve retail spaces, apartments, hotels, and office buildings.
Consider the leading alternative investment platform Yieldstreet, for example, which has funded some $4 billion in investments with an IRR of $9.7%. Its broad selection of asset classes includes a Growth & Income REIT, with minimums as low as $10,000, that makes equity investments in commercial real estate in primary markets and property types including retail, industrial, self-storage, hospitality, and multi-family.
As an alternative investment, real estate can also diversify one’s holdings – a crucial added benefit. Spreading investments around limits risk exposure to any single asset type, and thus mitigates overall portfolio risk, and potentially could improve returns.
Alternative investments can be a good way to help accomplish this. Traditional portfolio asset allocation envisages a 60% public stock and 40% fixed income allocation. However, a more balanced 60/20/20 or 50/30/20 split, incorporating alternative assets, may make a portfolio less sensitive to public market short-term swings.
Real estate, private equity, venture capital, digital assets, precious metals and collectibles are among the asset classes deemed “alternative investments.” Broadly speaking, such investments tend to be less connected to public equity, and thus offer potential for diversification. Of course, like traditional investments, it is important to remember that alternatives also entail a degree of risk.
In some cases, this risk can be greater than that of traditional investments.
This is why these asset classes were traditionally accessible only to an exclusive base of wealthy individuals and institutional investors buying in at very high minimums — often between $500,000 and $1 million. These people were considered to be more capable of weathering losses of that magnitude, should the investments underperform.
However, Yieldstreet has opened a number of carefully curated alternative investment strategies to all investors. While the risk is still there, the company offers help in capitalizing on areas such as real estate, legal finance, art finance and structured notes — as well as a wide range of other unique alternative investments.
Moreover, investors can get started with a relatively small amount of capital. Yieldstreet has opportunities across a broad range of asset classes, offering a variety of yields and durations, with minimum investments as low as $10,000.
Home sellers, particularly those whose property is listed as “for sale by owner,” employ comps to determine the correct price for their property. When using these comparables, it is important to focus on the facts and remain as unbiased as possible.
Yieldstreet provides access to alternative investments previously reserved only for institutions and the ultra-wealthy. Our mission is to help millions of people generate $3 billion of income outside the traditional public markets by 2025. We are committed to making financial products more inclusive by creating a modern investment portfolio.