by Ashley Turner
on Wednesday, June 14th, 2017 at 10:05am.
On paper, the word "comparable" is pretty vague. There is no official criteria for it, and so many times the concept is applied incorrectly, yet it's the main tool for figuring out the right price on a property. A huge part of a good REALTOR® is not only analyzing comparable properties in the proper way, but also explaining why they're relevant. Let us take this opportunity to share some hard facts about those things to help you establish a logical criteria.
1) Some agents get most frustrated at the "well, the house on my street sold for _____ amount" reference point when it comes to pricing a house. And I get that (we will talk about that below), but I think the biggest misconception is the 'active comparable fallacy'. It's always a point of interest to see what your competition is listed at, but very little stock should be placed on houses currently on the market when it comes to evaluating price. People can ultimately list at whatever they want! In an perfect world, everyone would list at correct market value, but as we all know, people often times want to list their house high for a variety of reasons. The truly valuable comparables are the houses in your price range, right location, etc, THAT HAVE SOLD. That is the best indicator of what the market is yielding. Solds are the truly valuable comparable, not active comparables.
2) May as well get the "house down the street" one out of the way. It's the oldest 'comparable' in the book, and with the internet and how much access buyers (well those working with an agent) have these days to properties, this is frankly the least logical aspect to examine when figuring out a price, at least when it's just based on crude optics. It certainly should be examined, due to sheer proximity, but there are so many variables beyond just being on the same street. Square footage, upgrades, house condition, yard landscaping, layout, market forces, and more will all add up to the final purchase price. Be very wary of just hearing the price via word of mouth and jumping to conclusions.
3) The market usually doesn't fluctuate wildly from week to week, but it does shift within the course of a year, for example. Educate yourself and prioritize properties that have sold in the past 6-12 months for example, putting extra emphasis on the earlier sales. Go back too far and numbers will be skewed and not applicable to current market conditions.
4) Again, a good agent likely wouldn't send you these, but ignore sold prices of houses that are far away. Even if square footage, upgrades, garage, etc are all close to identical, one neighborhood might be an oasis of beauty, sought after by all different kinds of families, while another might have dozens of needles lying about in their parks. This isn't to say only stay in your exact area, but set firm limits on that based on similar neighborhood criteria. Also shouldn't be too, too far.
Hopefully that educates you a bit on how to view comparables the most effectively. Of course agents study them every day and will be more adept at interpreting them properly, but these starting points will give you a great idea of how we view them, and will help you understand the basics of the process.