As you begin to expand your investment portfolio, you'll likely come across the term "comps." What are real estate comps? Just as learning acronyms and real estate jargon can be overwhelming, comps are one more tool you'll need to utilize when buying and selling investment properties.
Today’s blog explains everything you need to know about real estate comps, including what they are, how to find them, and how to use them. Read on to learn what comps are and how to start investing in real estate.
What Are Real Estate Comps?
The term “comps” is short for "comparables sales” in the real estate market. They are recently sold properties similar to the one you're looking to buy—in other words, they've got comparable features and characteristics.
For example, let's say you're considering investing in a duplex. To find the comps for this property, you would look for other properties in the area similar to it in terms of size, age, condition, number of units, and other characteristics.
What's the Purpose of Comps?
Comps are used to help assess the value of a property. By looking at recently sold properties with similar features, real estate investors can get a good idea of how much a residential property is worth to help make critical decisions when buying, selling, or renting out investment properties.
This is helpful for a few reasons:
- First, comps can give you a sense of whether or not the asking price is fair.
- Second, they can help you determine how much to offer on a property you want to purchase.
- Finally, they can give you an idea of what kind of return on investment (ROI) you can expect if you decide to purchase the property.
Many factors affect real estate, and If you're thinking about selling your property or placing an offer on a new investment, looking at comparable sales in the area can give you a better idea of how much a property is worth. Plus, if you're considering making improvements to your property, comps can help you determine whether or not those improvements are likely to result in a higher sale price down the road.
Comps are one of the most important tools that appraisers and investors use to value a property. The more comps you have, the more accurate your valuation will be.
Who Uses Comps in Real Estate?
We've covered what it means to use comps, but who exactly uses them? Comps are used by various people in the real estate industry, including appraisers, investors, real estate agents, lenders, and home sellers.
- Appraisers use comps to determine the value of an investment property for various reasons, including insurance purposes, tax assessments, and estate settlements.
- Real estate investors use comps to assess the potential profitability before making an offer. They're also helpful for determining how much to offer on a property.
- Lenders use comps to determine how much they're willing to lend on a particular property.
- Home sellers can also use comps to help them determine their property's value.
Real estate professionals make comps a crucial part of their real estate investing strategies. In fact, property managers use comps regularly to help investors set rental rates and analyze potential rental property upgrades depending on the real estate market.
How to Find Real Estate Comps
There are a few different ways to find comps for a property. Here are a few of the most common ways to find real estate comps:
- The MLS: The Multiple Listing Service is a database of properties for sale or recently sold. Many real estate agents and brokers have access to the MLS, so it's an excellent place to start if you're working with one of these professionals.
- Public Records: Public records are another good place to find recently sold properties. You can typically access these records online or in person at your local county courthouse.
- Online Real Estate Sites: Many websites, like Privy, allow you to search for recently sold properties in your area. These sites are a good option if you're not working with a real estate agent or broker and don't have access to the MLS.
Utilizing these resources can help you find the information you need to evaluate real estate investments. The most important thing is to make sure that you're comparing apples to apples—properties that have similar characteristics.
Privy Is the Perfect Tool to Start Investing in Real Estate for Beginners
Comps are a crucial part of the real estate investing process, but they're not the only tool that you need in your arsenal. If you're thinking about how to start investing in real estate, Privy can help.
Privy is an ideal tool for beginner investors because it takes the guesswork of finding properties. With Privy, you can search for properties that fit your investment criteria and learn from investor insights before making an offer on a property. Reach out soon to learn more about the Privy Advantage!
Download our free guide, "How to Invest In Real Estate: A Guide!" to get started with expert insights.