COMPS, short for Comparables, is a fundamental term in real estate appraisal. It refers to the use of similar properties that have recently sold in the same area to determine the value of a subject property. These comparables provide a benchmark for pricing, making COMPS a critical tool for real estate agents, appraisers, and buyers.
Defining Comparables
What are COMPS?
COMPS are properties with similar characteristics to the subject property, such as size, location, condition, and amenities. The comparables should be as identical as possible to the property being appraised to ensure an accurate valuation.
Characteristics of a Good Comparable
- Proximity: Close to the subject property.
- Timeframe: Recently sold, typically within the last six months.
- Features: Similar in size, number of bedrooms, bathrooms, and overall condition.
- Style and Age: Similar architectural style and construction date.
The Appraisal Process
How Appraisers Use COMPS
Appraisers collect data on comparable properties to establish a price range. They make adjustments for differences between the subject property and the comparables, such as adding value for extra features or deducting for flaws.
Steps in the Appraisal Process
- Data Collection: Gathering information on recently sold comparable properties.
- Comparison: Analyzing similarities and differences with the subject property.
- Adjustment: Modifying the value of comparables to account for variances.
- Final Estimate: Combining adjusted values to reach a final appraised value.
Historical Context
The Evolution of COMPS
The use of COMPS dates back to the early principles of supply and demand in real estate. Over time, it has evolved with advancements in technology, allowing for more accurate and efficient data collection. Online databases and MLS (Multiple Listing Service) systems have enhanced the accessibility of comparable sales data.
Applicability
Who Uses COMPS?
- Real Estate Agents: To set listing prices.
- Buyers: To make informed offers.
- Appraisers: To determine market value.
- Investors: To assess the potential return on investment.
Comparative Analysis
COMPS vs. Market Value
While COMPS are a method to determine market value, market value also incorporates broader economic factors like interest rates, overall market conditions, and buyer sentiment.
COMPS vs. Appraised Value
The appraised value is the formal estimate provided by a licensed appraiser, primarily based on COMPS but also considering unique property attributes and professional judgment.
Related Terms
- Market Value: The estimated amount for which a property should exchange on the date of valuation.
- Appraisal: A formal assessment of a property’s value, typically conducted by a certified appraiser.
- MLS (Multiple Listing Service): A database used by real estate brokers to share information about properties for sale.
FAQs
1. How many COMPS are typically used in an appraisal? Appraisers usually use three to five comparables to ensure a reliable estimate.
2. Can COMPS from different neighborhoods be used? It’s best to stick to the same neighborhood, but if necessary, adjustments must be made for location differences.
3. What happens if there are no recent COMPS? Appraisers may use older sales data or expand the search radius for comparable properties.
References
- “Principles of Real Estate Practice” by Stephen Mettling and David Cusic.
- The Appraisal Foundation’s Uniform Standards of Professional Appraisal Practice (USPAP).
- National Association of Realtors (NAR) guidelines on property appraisal.
Summary
COMPS, or comparables, are crucial in property valuation, offering a reliable reference to determine the market value of real estate. They form the backbone of the appraisal process, ensuring that stakeholders have accurate and up-to-date information to base their decisions on. By understanding and effectively using COMPS, real estate professionals can better navigate the complexities of the housing market.
