How Much is a Home Really Worth?
If you are a first-time homebuyer like me, then it is hard to answer that question. You have to realize that a “home” means different things to different people. Real estate can be either an asset or a liability, with valuations changing just like any other investment.
When you invest in the stock market, stock prices are determined every second the market is open. That price represents the consensus of what investors believe an individual stock is worth. The difference between real estate investments and your stock market investments is that there is no such type of valuation in real estate.
There are many different factors (such as region, community, school system, interior features, and exterior features) that need to be considered when determining the value of a real estate property.
What are Comps?
In real estate, the term “comps” is short for comparable sales. Comps are typically determined by comparing the property in question to other properties within a 1-mile radius, which have sold within the last year and have similar attributes (such as the same number of bedrooms, age, subdivision, square footage, etc).
Running comps is one of the best tools to determine a property’s value The most accurate comps, however, are only done by experienced realtors and appraisers who also have access to the complete MLS (Multiple Listing Service) listings and take into account the buyer’s preferences. However, there are a few real estate reference websites that allow you to get an idea of what these comps may show and what a certain property is worth.
Where Do I Find Comps?
In 2007, there were dozens of tools available to valuate a home, which DoughRoller founder, Rob Berger, discussed here. Since then, four websites have dominated the web traffic for real estate searches:
Run Your Comps
To run the comps feature on each of the above websites, you will first need to do two things:
- Sign up for a user account for each of the above websites and then Sign In. If you don’t have an account, you will get error messages like this:
- Know the address of the property on which you would like to run comps.
Zillow has an easy-to-use, interactive tool to filter out homes and build a more personalized comps summary. Here’s how to do it:
- Go to www.zillow.com, log in with your account, and search for a property under “Buy”
- Click on Expand on the upper right
- Scroll down until you see the Price This Home button (just below the Zestimate® price) and click Choose comps
4. Follow the instructions
a. Remove up to 3 properties based on locations
b. Remove up to 3 based on condition
c. You then receive a summary which gives you an estimate based on your selections above:
Trulia shows a list of comparable properties, but does not give an estimate based on those locations. Here’s how to find it:
1. Goto www.trulia.com, log in with your account, and search for a property under “Buy”
2. Scroll down to Comparables and Estimates to find your comps
Redfin is as simple as Trulia, but will give you an automatically generated estimate similar to Zillow’s summary and show you the properties it used to get that estimate.
1. Go to www.redfin.com, log in with your account, and search for a property under Find a Home
2. Click on Redfin Estimate or scroll down to the Redfin Estimate section
3. The Redfin Estimate will show you the exact properties that it used to calculate the comps.
Realtor.com also shows a list of comparable properties but it is a little different than the previous three websites. You will need to filter out your results to get your comps. Here’s how to do it:
1. Go to www.realtor.com, click on JUST SOLD, and search by the property’s Zip Code
2. Zoom in to the address in question using either: a) your mouse scroll wheel or b) the ( + / – ) buttons on the map
3. Click on the Search when moving map to get your comps.
You may click on List to show a list of the filtered results
More to Comps than Price
A home’s financial valuation means nothing if you don’t know what you want. As I mentioned above, your best comps will come from an experienced real estate professional who will take your preferences into account. If you don’t know where to start, our very own DoughRoller Editor, Abby Hayes, wrote an excellent article on the 7 Steps to Take Before Buying Your First Home.
When you know what you want, you can work backwards from there. If you have kids, are you looking for a good school system? If you’re single, do you prefer a metropolitan area that offers an excellent nightlife? If you’re a farmer, do you need land with healthy soil and growing conditions? Finding a home in a decent area that you can afford means nothing if the local school system is lacking, the nearest bar is a 30-minute walk away, or if you can’t grow your favorite crop on your land.
Finding a “home” certainly means different things to different people. Find out what you want out of a home, find a neighborhood that meets your requirements, and find out what you can afford. Once you have determined your priorities and needs, you will be on your way to running your own comps.