Understanding the Most Accurate Method for Determining a Comp

Understanding the Most Accurate Method for Determining a Comp

Trying to determine the correct value of a property before it has been rehabbed can be a challenge for an investor.  Understanding how to properly obtain the After Repair Value (ARV) of a property can be the difference between a money-making deal and one that fails. We are all in this business to make money.  Understanding the proper way to evaluate a property will help put that money into your pocket.

Let’s look at some different ways folks attempt to get an accurate number to determine the ARV of a property.   Perhaps you have tried some of these:

Some individuals ask their agent to run a report for them that gives the median or average price of the sold properties around the subject property.  They then take the average or median price and try to plug that number in as an ARV.  The problem in doing this is that there is no consideration of the exact square footage of the subject property.  This method might work if every house in the neighborhood were exactly alike. However, no two houses are EXACTLY alike, let alone an entire neighborhood.
Other individuals like to consider the active MLS listings their agent provides to help them determine a price. The problem with an active listing is that the number used is a “wish” price. That is all the asking price is, a simple wish.  Trying to determine an ARV off of a wish can turn bad very quickly for an investor.  The ARV needs to be accurate in order to make money on a deal.
Others like to determine an ARV by using the various estimates from online sites.  They might take the Zestimate or other estimates from real estate sites to try to determine the ARV.  This might give an accurate number, but on the other hand, the offer could be way off of the correct ARV.  By not getting an accurate number for the ARV, an investor could be facing a big financial problem in their rehab project.

So, what do you do to insure accurate number for your ARV?  The best place to start is to have a good real estate agent pull comps for you.  Inform the agent that you need comps that are sold. Tell the agent you would like comps that are within a half-mile of your property.  Let the agent know you would like comps that have the same number of beds and baths.  You would also like comps that are within 20% of the square footage of your property.  Also, let the agent know you want nothing that was sold more than six months ago.  These are the starting points for finding good comps in order to get an accurate ARV. If an agent understands how to find good comps, you are on your way with this property.  If the agent cannot find good comps, you should consider walking from this property.  If you can’t find comps, you may have a difficult time selling the property when the rehab work is done.

Value the property correctly and you will have a great time going to the bank. Have great success in your investing.  You deserve it!