Whether buying or selling real estate, proper research will help you get the most out of each transaction.
Real estate entrepreneurs like to perform research by running real estate comps. If you’re new to the field, you may have heard this term but may not be sure what it means.
Don’t fret; we’re going to cover the basics of finding comparables in real estate, including what they are, why they’re important for investors, and how to run comps.
- Real estate comps (comparables) are similar properties
- Real estate investors use comps to determine a property’s true value
- Understanding a property’s value can help you get the most out of a real estate transaction
- PropStream offers an intuitive interface to run comps quickly with MLS and Public Record data
- How to use PropStream’s data to run comps
What Are Comps in Real Estate?
Real estate comps (AKA comparables) are properties sold in a specific neighborhood with a similar size, style, condition, and age.
More specifically, quality real estate comps take these features into account:
- Number of bedrooms
- Final sale price
- Number of bathrooms
- Home’s age
- Style of the home
- Condition of the property/lot
- Extra amenities (e.g., lake access, pool, etc.)
Real estate entrepreneurs of all types (e.g., investors, agents, appraisers) use comparable properties to perform what’s known as a “comparative market analysis.” A comparative market analysis provides insight into the true value of a property based on recent market activity for similar properties.
Running comparables helps buyers, sellers, and agents negotiate better deals. Rather than convincing sellers with exact numbers and statistics, a real estate professional can use comparables as a base to get what they desire out of the deal.
Why Are Real Estate Comps Important for Investors?
Running comps can help investors avoid overpaying for a property and selling for a lower profit than necessary. Essentially, comps help determine the return on investment (ROI) for a particular real estate deal.
Here’s a more in-depth look at how real estate comps can benefit each type of investor:
Running comps is vital for wholesalers because it helps them maximize their commission.
Since a wholesaler's commission depends on the price a home sells for, the investor will want to assign a contract to another buyer for the highest amount possible. If they can assign the contract for more than the contracted price to the owner using comparables as their guide, they can use that margin to collect a larger commission.
Fix and Flip
Since fix and flip investors buy and sell property as part of one project, real estate comps will help when evaluating a property to flip and when they go to sell.
Running comps before purchasing a property will help a fix and flip investor secure a property that allows a budget for renovations, closing costs, and profits. In addition, investors can use PropStream’s Rehab Calculator to help estimate the renovations needed for a project. Understanding necessary renovation costs allows investors to realize the true value of a property as quickly as possible, assisting with the comping process.
When it’s time to sell, a fix and flip investor can run comps to figure out the property’s ARV (After-Repair Value). ARV can be calculated using nearby properties that have been recently renovated with similar enhancements.
Pro Tip: When running comps in PropStream, each property details page offers “Flip Comps,” which can be found in the second box under the “Comparables and Nearby Listings” tab.
Buy and Hold
For buy and hold investors, comping needs to be done in three stages:
- Comping the initial property of interest
- Performing rental comparables to set a price and identify the potential of a market
- Comping when it’s time to sell the property to get the highest return from the property
As we discussed with wholesalers and fix and flippers, comping before you purchase is crucial. Comping helps you understand your deal, allowing you to budget for any fixes and upgrades needed for the property (if they have not already been done).
Before you purchase a new rental property, you’ll want to understand typical rent prices in areas you’re interested in. This allows you to calculate whether purchasing the property for a specific price will allow you to have a return on investment or at least break even. The last thing you’ll want to do is overpay for a property and have a monthly mortgage that’s higher than what you can get renters to pay.
Evaluating rental comps is also part of the way buy and hold investors run comps. Certain areas attract renters more than others; therefore, landlords can charge higher rental prices. These are typically the areas buy and hold investors will want to target. PropStream’s Yield Percentage calculation in the Property Details section allows you to see that.
If you invest in an area where you can charge a higher rental amount, you’ll likely take home a higher profit each month, especially if you score a great off-market deal.
Aside from the monthly rental profit, comps are also crucial for landlords once they’re ready to sell a property to ensure they get the most out of the sale.
Tip: In PropStream, run income comps by selecting “Analytics” from the Property Details Page. Learn about an area’s average rent, rent price, rent price per bedroom, and rent price per square foot! Additionally, you can use the Heat Map to look at rental trends and growth opportunities, which allows you to make an educated evaluation regarding the potential of a market.
3 Resources You Can Use For Running Comps
You now know why comparables are important, but where exactly can you find them?
1. MLS (Multiple Listing Service)
If you have your real estate license, you can use the MLS to run comps.
To run comps using the MLS, you can compare the sale prices of similar, nearby properties with the property you’re interested in buying or selling. Comparing MLS Sales Prices allows you to determine a fair yet competitive price for your property.
Tip: If you don’t have your real estate license, you can have difficulty getting this data, as sale prices are removed quickly from public-facing listing sites.
2. Public Records
Public Records show the date of sale and the amount the property sold for, according to the sale documents provided to the county. Depending on where you search, you may or may not have access to the data.
For example, disclosure states allow the county records for the sale of a property to be public. In non-disclosure states, these records are not readily available.
There are 12 non-disclosure states:
- Missouri (some counties)
- New Mexico
- North Dakota
3. Real Estate Data Software
A comprehensive real estate data software like PropStream is excellent for running comps, as it makes MLS and Public Record Data (for disclosure states) accessible from a phone or computer.
For non-disclosure states, PropStream even provides a Public Record Estimate. In both disclosure and non-disclosure states, you can use PropStream’s Estimated MLS Sales Price to get a sale price with 99% or better accuracy. Without this estimate, you would need a real estate license to access the exact MLS Sales Prices.
With data for over 153 million properties nationwide, there are no shortage of comparable properties to use as a base for determining the value of your property.
Tip: With PropStream, you can even print off a Comps Report to keep on hand when meeting with sellers.
How to Determine Real Estate Comps With PropStream
To watch an instructional video on running comps in PropStream, click here!
Use PropStream to run comps in 4 easy steps once you have identified the subject property:
Step 1: Click on the “Comparables & Nearby Listings” tab on the Property Details page.
Step 2: Choose the tab you’d like to find comparable properties for (e.g. Cash Buyers, Liens, Pre-Foreclosures, Flips, etc.).
Step 3: Set your search criteria. The system automatically sets your criteria to find:
- Properties that have sold in the last year
- Properties within a 0.5-mile radius of the property
- Properties with similar square footage (20% more or less)
Note: This menu is highly-customizable, so you can easily input your preferred criteria if you don’t want to search with the default criteria.
Step 4: Choose the datasets you want to run comps with. You can use Public Record Data, MLS Sales Data, or both. Having access to both datasets will help you pull the most accurate comps.
Reminder: In non-disclosure states, Public Record Sale Prices are estimated due to non-disclosure state laws.
Learn More About Running Comps
Knowing how to run comps is crucial for getting the most out of your real estate deals.
Want to know more about running comps and how you can do it in PropStream? Take our free Academy course: The Art and Science of Sales Comps!