When trying to determine the market value of your home, many homeowners instinctively look at recent sales of nearby properties. While this is a good starting point, the problem arises when homeowners pick properties that aren’t truly comparable to their own. This leads to an inflated or unrealistic view of their home’s value, which can result in disappointment when the home doesn’t sell for the expected price. To avoid this pitfall, it’s crucial to understand how to select the right comparable sales, also known as “comps,” so that you can arrive at a more accurate market value.

In this article, we’ll dive into common mistakes that homeowners make when selecting comps, the critical factors that need to be considered (location, condition, floor plan, lot size, and more), and how appraisers approach comparables differently from homeowners. By following these guidelines, you can avoid overestimating your home’s value and set a realistic price that will attract buyers.

Common Mistakes Homeowners Make When Selecting Comps

Before diving into how to pick the right comps, let’s start by discussing some of the common mistakes homeowners make:

1. Choosing the Wrong Location: Homeowners often select properties in nearby neighborhoods that might not be truly comparable. Just because a home is close by doesn’t automatically make it a good comparable sale.  It may have too many differences from the subject property to make reasonable adjustments.
2. Overlooking Condition: Homeowners frequently fail to account for the condition of competing properties, which may have been extensively updated or remodeled, whereas your home has had few improvements and may suffer from a higher degree of deferred maintenance.
3. Misunderstanding Size Comparisons: Many homeowners rely solely on price per square foot to estimate value, without considering other factors that significantly impact home value, such as lot size and economic or functional obsolescence.
4. Ignoring Key Features: Not all homes are created equal, even if they are the same size. Features such as floor plan, lot size, and age of the property play a major role in determining market value, and these elements are often overlooked.

Now, let’s go into more detail about how to avoid these common pitfalls by carefully choosing the right comparable sales.

Location is Key: Why Your Home’s Market Area Matters More than the Neighborhood

While proximity to other homes is important when selecting comps, the concept of location in real estate goes far beyond distance. Market area should be the primary factor for comparison, rather than focusing solely on neighborhood boundaries.

Key Location Considerations:

1. Schools: Homes in top-rated school districts generally command a higher price. Even if your home is in the same neighborhood as another, if it’s zoned for a less desirable school, it may not be as valuable as a similar home across the street that’s in a better school district.
2. Shopping, Restaurants, and Parks: The proximity to essential amenities and lifestyle destinations like shopping centers, restaurants, and parks is another critical factor. A home located within walking distance of these attractions is generally more desirable and may sell for more.
3. Walkability and Walk Scores: Homes in walkable areas tend to sell faster and at higher prices. Walk Scores measure how easy it is to complete daily errands without a car. If your home has a high Walk Score, this adds value.
4. Negative Factors: Pay attention to any negative external factors like road noise, nearby high-tension power lines, or airport flight paths (also known as economic obsolescence). Homes located near these undesirable features may be less valuable, and properties without such issues should not be used as comps if they don’t match your situation.

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Condition: Why In-Person Visits Matter

Photos on real estate websites can be deceiving. A home might look pristine in photos, but in reality, it could have underlying issues like an old roof, sloping floors, or outdated plumbing and electrical. This is why condition is a critical factor in determining whether a property is a good comp.

Key Condition Considerations:

1. Remodels and Updates: Homes that have been remodeled, with new kitchens, bathrooms, flooring, or systems (HVAC, plumbing, etc.), are more desirable and will command a higher price. When selecting comps, it’s important to compare homes that are similar in condition to yours. For example, if your home has not been updated in 20 years, it would be unrealistic to compare it to a home that was recently renovated.
2. Effective Age: The effective age of a property refers to how old it feels based on updates and maintenance, rather than its actual age. A well-maintained older home could have a similar effective age to a newer property that has not been properly cared for.
3. In-Person Assessments: Whenever possible, you should visit competing properties in person to assess their true condition. This will give you a much clearer sense of how they compare to your home.

Floor Plan: Why Single-Level Homes Are More Desirable

The layout or floor plan of a home can drastically affect its marketability. Even if two homes have the same square footage, their value may differ based on how that space is used.

1. Single-Story vs. Multi-Level: Single-story homes are generally more desirable than two- or three-story homes, particularly among aging buyers or families with young children. If your home is multi-story, it may not be as valuable as a single-level home, even if the square footage is the same.
2. Room Flow and Functionality: The arrangement of rooms also matters. Open floor plans, large kitchens, and homes with ample storage are typically more valuable than homes with a more compartmentalized or awkward layout.

Lot Size and Utility: More than Just Square Footage

While the size of your lot is important, it’s not just the total square footage that matters. Lot utility, landscaping, and hardscaping (such as patios and decks) can play a big role in determining your home’s value.

1. Usable Space: A large lot may sound appealing, but if it’s sloped, difficult to maintain, or doesn’t offer usable outdoor space, it may not be as valuable as a smaller but well-designed lot.
2. Landscaping and Hardscaping: Well-landscaped yards with hardscaping features such as patios, outdoor kitchens, or fire pits add value. If your yard is well-maintained, you should compare it to homes with similarly designed outdoor spaces.

Price Per Square Foot: Useful But Often Misleading

Many homeowners make the mistake of relying solely on price per square foot to determine their home’s value. While it’s a useful tool, it can be misleading if not applied correctly.

1. Why Price Per Square Foot Alone Isn’t Enough: Homes with very different features, layouts, conditions, and locations can still have the same square footage. For example, a remodeled home with an updated kitchen and new floors will sell for a higher price per square foot than a home in need of repairs. The price per square foot for homes with large lots may also be lower compared to homes with smaller, highly desirable lots closer to amenities.
2. When It’s Helpful: Price per square foot can be a useful metric when you’ve selected truly comparable homes—those that are similar in location, size, condition, and lot utility. In this case, price per square foot can help confirm a general range of market value for your home.

How Appraisers Choose and Adjust Comparables

Unlike homeowners, who may simply compare nearby sales, appraisers take a more detailed approach to choosing and adjusting comps. When determining the value of your home, appraisers make adjustments based on a variety of factors:

1. Age: An appraiser will make adjustments for the actual age and the effective age of a property. For example, a newly built home will be valued differently than a home built 30 years ago, even if both homes are in excellent condition.
2. Lot Size and Utility: Appraisers adjust for lot size, but they also take into account how usable the lot is. Large lots in suburban areas are often adjusted differently than smaller, more functional lots in urban areas.
3. Condition and Amenities: Appraisers look at the overall condition of the home, including the roof, plumbing, electrical, and major appliances. They also adjust for amenities like pools, accessory dwelling units (ADUs), and features like premium views or outdoor living spaces.
4. Unique Features: Appraisers may make adjustments for features such as a waterfront location, proximity to parks, or access to desirable amenities.

Appraisers also adjust for differences in market conditions, which is why the timing of the sale is crucial when selecting comparables.

Conclusion: Picking the Right Comps for a Realistic Home Valuation

Choosing the right comps is essential to arriving at an accurate estimate of your home’s market value. By focusing on key factors like location, condition, floor plan, lot size, and utility, you can avoid the common pitfalls that lead homeowners to overestimate their home’s value. While price per square foot can be a helpful metric when the right comps are chosen, it should never be used in isolation.

Lastly, consider how appraisers evaluate homes by making adjustments for age, lot size, condition, and amenities. When you use the same criteria that an appraiser would, you’re far more likely to price your home competitively, which will attract buyers and result in a successful sale.

Point. Click. Offer. Sell.

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