Using comparable properties, also known as comps or comparables, is the best way for you to get an accurate after repair value (ARV) for a property you are interested in making an offer on. Your goal is to get a minimum of 3 good comps, you will take as many as are available, but you need at least 3. Here are 9 steps that will help you get the best comps on potential properties you would like to make an offer on:
- All comps have to be sold properties. You do not want listed properties or properties that are under contract. The sales process has to be completed.
- No fore-closures, short sales, or rehab properties. You want move in ready properties only.
- Look for comps that have sold within the last 3 months. If you need to go back further because you did not get at least 3 comps. you can, but you do not want to go back further than 1 year.
- Comps should be within a half mile to one mile away from your subject property. If you do not have enough comps with in the mile radius you can expand your area further to find sold properties that would make good comps. This is most common in rural areas and I have seen comps go out to 3 miles away the subject property.
- Interior square footage needs to be similar. Use a range of 500 square feet or 20% whichever is greater. Here is an example of how to use your square footage range: Your subject property is 1258 square feet, so, you should get all properties that fall into a range from 1000 square feet to 1500 square feet. That gives you your 500 square foot range. When using the 20% rule take 20% of your subject properties square footage for your range. For example: your property is 3500 square feet. When you take 20% of the square footage you get 700 square feet. Now you will use 700 square feet as your range. Your comp range would be 3150 to 3850
- Your comps should have the same number of bedrooms and bathrooms as your subject property.
- Structure of the comp property needs to be the same as your subject property. For example: If you have a 2 story home you want 2 story homes for comparables.
- Acreage or lot size of your comps needs to be similar to your subject property.
- Age of properties comps should be within 20 years of your subject property.
The closer you can get your comps to what your subject property is the more accurate your ARV will be. By using these steps, you can assure yourself that your comps will give you the best ARV available and helping you create a more accurate potential value for your subject property.