What Are Comps? A Way to Pin the Right Price on a Home

On October 17, 2016   /   Home Buying  
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comps

By: Julie Ryan Evans

Homes are unlike the majority of other things people buy in that the price isn’t set in stone. Sure, the listing might include an “asking price,” but as this term suggests, that’s just a request rather than a hard, unwavering demand. And that’s why comps are so important. So what exactly are comps?

Short for housing “comparables,” comps are a way to help you figure out what a home is worth based on the recent sales prices of similar properties in the area. Home sellers (and their real estate agents) use comps to help them come up with their asking price, while buyers can use comps to come up with how much to offer. As such, it’s an important concept for both buyers and sellers to master.

Here are the basics on how to find comps and wield them to your advantage.

What are comps?

With housing comps, you ideally want to compare apples to apples—not apples to kiwi (which is, let’s face it, a strikingly unappealing fruit). In other words, it’s important for comps to be as similar to your own property as possible. While what constitutes a comp for a home will depend on each particular market, here are some ballpark parameters:

  • Same location: According to John Lyons, a real estate broker with Baird & Warner in Chicago, a comp is usually considered a property located within a half-mile radius of the home in question.
  • Same size: If the house in question is 5,000 square feet, you’ll ideally want to look at other houses hovering around 5,000 square feet.
  • Number of bedrooms/bathrooms: When push comes to shove, this matters more than square footage. “While size is important, utility is a better gauge for comparability,” says Christine Lutz, director of residential brokerage for Kinzie Brokerage in Chicago. “You can have a three-bedroom, three-bath unit that’s 2,000 square feet, or you can have that same square footage in a one-bedroom/one-bath. Bedroom and bathroom counts need to be similar in order to be considered actually comparable.”
  • Recent sales price: Since housing prices change from month to month, your comps should ideally be homes that were sold within the past six months to a year tops.
  • Style, view, and other details: Units in the same high-rise may have different views—one of a lake, the other of a parking lot. So although they’re similar in terms of bedrooms and square footage, the lake view should be taken into account, too, and compared with other properties with lake views in the area. Meanwhile if you’re looking at attached dwellings such as townhouses or co-op apartments, end units typically fetch a higher price than interior units with homes on each side due to the added noise issues and/or fewer windows.

How to find comps and use them during negotiations

To find comps, you can start by looking for recent listings in your area on realtor.com®. But for a full, deep dive into the numbers, you’ll want to enlist the help of your real estate agent or other professional. The reason: Listings typically feature the asking price, but not the final sales price (which could be higher or lower and is a more accurate gauge of a home’s market value).

Luckily, your real estate agent will have access to databases with more detail like the multiple listing service. Realtors will also know how to synthesize all this information into an asking price (or offer) you can justify and stand by, which is important once the negotiations on a home get rolling.

For instance, let’s say you’re selling your home for $200,000 and some buyer lowballs you with $170,000. Comps will allow you (or rather your agent) to go back to the buyer and say, “Another three-bedroom with about the same square footage a block away just sold last month for $190,000! So, we’re fairly confident we can find a buyer who’ll pay at least that much. Care to raise your offer to $185,000 at least?”

Or else, let’s say you fall in love with a home with the asking price of $400,000. You’re tempted to pay what’s asked, but then you find out that the comps are going for only $350,000—which means you’d be overpaying by $50,000! This is an instance where you and your agent could inform the home seller, “Hey, we found comps in your area going for $350,000. So that’s why we’re offering you $360,000 and think it’s a fair offer.”

Keep in mind, though, that comps are more of an art than a science, which is why different professionals may come to different conclusions. Nonetheless, comps add oomph to back up whatever you’re asking for (or offering), strengthening your negotiation position and saving you tens of thousands of dollars. In other words, it pays, literally, to have comps in your corner.

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What Is Escrow? How It Keeps Home Buyers and Sellers Safe

On September 19, 2016   /   Home Buying  
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escrow sign

By: Cathie Ericson

Buying a house can involve big and scary terms, and “escrow” ranks near the top. So what is escrow, anyway?

The good news is that escrow is not as ominous as it sounds. In the home-buying process, escrow is a financial tool that allows you to set aside important items such as the buyer’s earnest money check and purchase agreement document in an impartial holding area, where it will stay until all of the details are worked out between a buyer and a seller, says Andy Prasky, a real estate professional with Re/Max Advantage Plus in Twin Cities.

The escrow officer is a third party—perhaps someone from the closing company, an attorney, or a title company agent (customs vary by state). How much does escrow cost? That varies too—as well as whether the buyer or seller (or both) pays—with the fee for this service typically totaling about 1% to 2% of the cost of the home.

How escrow works

The third party is there to make sure everything during the closing proceeds smoothly, including the transfers of money and documents. Escrow protects all the relevant parties by ensuring that no funds and property change hands until all conditions in the agreement have been met.

Along the way, proper documentation is filed with the escrow officer as each step toward closing is completed. Contingencies that might be part of the process could includehome inspection, repairs, and other tasks that need to be accomplished by the buyer or seller. And every time one of those steps is completed, the buyer or seller signs off with a contingency release form; then the transaction moves on to the next step (and one step closer to closing).

Once all conditions are met and the deal is finalized, the money due to the sellers is transferred to them. Meanwhile an escrow officer clears (or records) the title, which means the buyer officially owns the home.

How escrow protects buyers and sellers

Escrow may seem like a pain, but here’s how it can work in your favor. Let’s say, for example, the buyer had a home inspection contingency and discovered that the roof needed repairs. The seller agrees to fix the roof. However, during the buyer’s final walk-through, she finds that the roof hasn’t been repaired as expected. In this case, the sellers won’t see a dime of the buyer’s money until they fix that roof. Talk about a nice safeguard for the buyer!

Sellers benefit from escrow, too: Let’s say the buyers get cold feet at the last minute and bail on the deal. This may be disappointing to the seller, but at the very least, buyers have typically ponied up a sizable chunk of change for their earnest money deposit. This money, often totaling 1% to 2% of the purchase price of a home, has been held in escrow. When buyers back out with no legitimate reason, they forfeit that money to the seller—a decent consolation for the sale’s failure.

Escrow, in other words, is the equivalent of bumpers on cars, keeping everyone safe as they move forward in a real estate transaction. Odds are, no one’s trying to swindle anyone. But isn’t it nice to know that if something does go wrong, escrow is there to cushion the blow?

Deirdre Woollard and Broderick Perkins contributed to this article.

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6 Reasons You Should Never Buy or Sell a Home Without an Agent

On June 27, 2016   /   Home Buying, Selling a Home  
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never buy sell without an agent

By: Rachel Stults

It’s a slow Sunday morning. You’ve just brewed your Nespresso and popped open your laptop to check out the latest home listings before you hit the road for a day of open houses.

You’re DIYing this real estate thing, and you think you’re doing pretty well—after all, any info you might need is at your fingertips online, right? That and your own sterling judgment.

Oh, dear home buyer (or seller!)—we know you can do it on your own. But you really, really shouldn’t. This is likely the biggest financial decision of your entire life, and you need a Realtor® if you want to do it right. Here’s why.

1. They have loads of expertise

Want to check the MLS for a 4B/2B with an EIK and a W/D? Real estate has its own language, full of acronyms and semi-arcane jargon, and your Realtor is trained to speak that language fluently.

Plus, buying or selling a home usually requires dozens of forms, reports, disclosures, and other technical documents. Realtors have the expertise to help you prepare a killer deal—while avoiding delays or costly mistakes that can seriously mess you up.

2. They have turbocharged searching power

The Internet is awesome. You can find almost anything—anything! And with online real estate listing sites such as yours truly, you can find up-to-date home listings on your own, any time you want. But guess what? Realtors have access to even more listings. Sometimes properties are available but not actively advertised. A Realtor can help you find those hidden gems.

Plus, a good local Realtor is going to know the search area way better than you ever could. Have your eye on a particular neighborhood, but it’s just out of your price range? Your Realtor is equipped to know the ins and outs of every neighborhood, so she can direct you toward a home in your price range that you may have overlooked.

3. They have bullish negotiating chops

Any time you buy or sell a home, you’re going to encounter negotiations—and as today’s housing market heats up, those negotiations are more likely than ever to get a little heated.

You can expect lots of competition, cutthroat tactics, all-cash offers, and bidding wars. Don’t you want a savvy and professional negotiator on your side to seal the best deal for you?

And it’s not just about how much money you end up spending or netting. A Realtor will help draw up a purchase agreement that allows enough time for inspections, contingencies, and anything else that’s crucial to your particular needs.

4. They’re connected to everyone

Realtors might not know everything, but they make it their mission to know just about everyone who can possibly help in the process of buying or selling a home. Mortgage brokers, real estate attorneys, home inspectors, home stagers, interior designers—the list goes on—and they’re all in your Realtor’s network. Use them.

5. They adhere to a strict code of ethics

Not every real estate agent is a Realtor, who is a licensed real estate salesperson who belongs to the National Association of Realtors®, the largest trade group in the country.

What difference does it make? Realtors are held to a higher ethical standard than licensed agents and must adhere to a Code of Ethics.

6. They’re your sage parent/data analyst/therapist—all rolled into one

The thing about Realtors: They wear a lot of different hats. Sure, they’re salespeople, but they actually do a whole heck of a lot to earn their commission. They’re constantly driving around, checking out listings for you. They spend their own money on marketing your home (if you’re selling). They’re researching comps to make sure you’re getting the best deal.

And, of course, they’re working for you at nearly all hours of the day and night—whether you need more info on a home or just someone to talk to in order to feel at ease with the offer you just put in. This is the biggest financial (and possibly emotional) decision of your life, and guiding you through it isn’t a responsibility Realtors take lightly.

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6 Reasons Real Estate Agents Aren’t Extinct

On May 31, 2016   /   real estate advice  
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realtors

By: Craig Donofrio

About a year ago I decided I wanted to buy a house. I got seriously excited about it. I even picked out a custom refrigerator and looked into getting a Lowe’s credit card to cover all of my remodeling needs.

I thought of everything—except for how I was going to, you know, pay for it.

It’s 2016, and it seems our need for real live people is ever-diminishing. There’s self-checkout instead of cashiers, selfie sticks instead of photographers, self-driving cars, self-watering plants, self-administered colonoscopies … well, you get the idea. Given that technology has become so important to buying and selling homes, you’d also think real estate agents would be a dying breed—yet they aren’t showing any signs of slowing down, with approximately 2 million active real estate agents throughout the country.

So why did real estate agents make the technology transition fully intact as opposed to, say, travel agents? We asked some experts to weigh in.

Reason No. 1: Selling is complicated

For many people, “a real estate transaction is financially momentous and complex—the most complex transaction people do in their life,” explains David Reiss, a law professor and academic program director for the Center for Urban Business Entrepreneurship at Brooklyn Law School.

Comparatively, personal travel agents—the kind where you’d walk in their office and have them book you a hotel and a flight—have gone the way of the dodo, because now that’s all simple DIY stuff (to be fair, not all travel agents are out of a job—there’s still a healthy travel agency sector that thrives on corporate and luxury bookings).

“People like having an expert when dealing with large, complicated transactions,” says Jeff Tomasul, founder of Vespula Capital LLC, an investment management company based in Greenwich, CT. “Why do people still have financial advisers? They want someone who does it full-time to make sure they are not doing anything wrong.” Same with real estate agents.

And real estate transactions are often anything but straightforward. Some deals, like short sales, can be “much more intricate than a regular transaction,” Reiss says, with lenders who have requirements that “a regular person would have no idea about.”

Reason No. 2: Buying ain’t easy, either

Buying a home, even if you come in with all cash, is not a cookie-cutter task, and you can find yourself drowning in paperwork and stressed out juggling things like meeting buyers, and dealing with the seller’s agent, lender, and title companies. Agents ease the whole transaction, and it’s something that has kept their profession alive.

“They can hold your hand through the process,” Reiss explains. “They might say, ‘This lender takes a long time, so put in your contract immediately and sign this and that paper and get all this stuff ready before you’re walking over hot coals with the lender for money.”

Reason No. 3: It’s their top priority

Your own interests and priorities will very likely always be split—because of those pesky little things like, say, job and family—but a Realtor® can be laser-focused on getting the deal done. “A Realtor has a singular aim: to sell houses,” Reiss says.

Simply put, having a real estate agent can make your life easier. Tomasul found himself in a frustrating position when he tried to sell his apartment in Manhattan without an agent. “Showing it was so tough with my schedule, and it was hard having a full-time job and keeping up in a timely matter with potential buyers,” he recalls.

That means the less you make time for buyers, the longer your place will stay on the market—and that’s not good for your bottom line.

Reason No. 4: They know the market, and the players, better than you

“The agent knows the market intimately, even more than a pretty informed resident,” Reiss says. And all that knowledge saves time. “Tracking sales, knowing listings, spending a lot of shoe leather on houses already for sale—right off the bat, they know more than the ordinary Joe and Jane. They understand condo boards and title companies. As a player in the game, they know what the other players are looking for and how to deliver.”

Reason No. 5: They’re objective

Without an agent showing your house for you, you have no shield from criticisms that can—and will—be made about your house from prospective buyers. Your favorite room in the home might be described as “tacky,” “needing a renovation,” or much worse. Sometimes such comments are negotiating tactics. Sometimes they are heartfelt, off-the-cuff opinions. But either way, they can lead to problems.

“It impacts objectivity for a seller to hear negative things about their own place,” Reiss explains. “Realtors aren’t emotionally invested. They don’t take comments personally. It’s not ‘Oh, you don’t like my chandelier? Then get out of my house.’

Reason No. 6: The cost is worth it

We’re not saying a 6% commission is chump change. It can be a good amount of money when you’re selling your house. But using an agent saves a ton of time. Even with a 6% commission, time is money—for many people, time saved negates the cost. Plus, given that home buying and selling is a negotiation where you can save big if you bargain right, skilled real estate agents can step in to fight on your behalf, saving you major money. In other words, typically the money you pay an agent will come right backatcha.

Feeling a bit more confident than ever that you should have a real estate agent watching your back? Then Find a Realtor now and get moving.

 

 

 

 

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The Lowdown on How Comps Can Drag Down Your List Price

On April 24, 2016   /   Selling a Home  
Tags: , , , ,

By: Angela Colley

How Comps Can Drag Down Your List Price

We’ve all had that crazily obsessive-compulsive neighbor who keeps his property in pristine, showroom condition, keeps a stern eye on the whole street, and never hesitates to walk over and scold you about your broken shutters while you’re trying to drag groceries in from the car.

Maybe you’ve wondered what happened to cause your neighbor to get so uptight in the first place. Our guess: He’s tried to sell a house before. And he got burned by the comps.

When you’re getting ready to put your house up for sale, your Realtor® will likely run a comparable market analysis (or CMAs, aka “comps”). Comps are usually a good thing—the information can really help you price your house right.

But what happens when good comps go bad?

How comps work

First, a little background. To find a comp, a Realtor looks at homes in your area comparable to yours that sold recently. So if you have a three-bedroom, the Realtor will probably come back with the three-bedroom one block over that sold last month. She’ll be armed with the sold price, the list price, and other salient facts.

In theory, all that info can be used to decide a good list price for your house. But the reality is that collecting methods might not be perfect.

“Don’t believe the hype that all CMAs are created equal,” says Aaron Seekford, a real estate broker in Arlington, VA.

When comps work—and when they don’t

If you’re lucky enough to be living in an eerily perfect place that reeks of the 1998 classic “Pleasantville,” you probably won’t run into any trouble. Congrats! But if your hood is unusual or a little rough around the edges—or your home is a one-of-a-kind, and maybe not in a great way—comps might send you traveling down the wrong road.

Price your home too high due to those inflated comps, then it simply might not sell. Your Realtor can drop the listing price—again and again, if necessary—but then buyers might wonder if something’s wrong with the place. Price it too low, and your home will probably get snapped up right away—but you’ll walk away with less than you could have netted. Either way, it’s a bummer.

So you need to know the different comp-skewing dangers and how to deal with them.

So what are the trouble areas?

Living adjacent to crime or run-down areas: In my area people like to say there aren’t really bad neighborhoods, just bad streets. And it’s true. I live on a great block, but the people living two blocks over aren’t as lucky—and the houses there sell for much cheaper.

Having the best house on the block is rarely a good thing (we’ve talked about it before), and this is especially true in those up-and-coming areas. You just know you have what it takes to turn the nabe around, but you might pay for it with a bad comp.

“Most pros will adjust the analysis by pointing out the lower-priced homes and tax values,” Seekford says. But the only real way to tell how a neighborhood works is in person. “[They] would have to drive by the surrounding neighborhood, looking at the higher sales on your street versus the other blocks.”

Your Realtor should do this. But if you think she hasn’t, flag it.

The other house was next to a toxic waste site: OK, hopefully your house isn’t anywhere near a federal Superfund site, but you get the idea. What happens if the comp house sold for dirt-cheap because it was next door to something awful?

“ON CMAs, I often like to include a section of what I call ‘Other’—like if the home is located next to a mill or waste treatment plant,” Seekford says.

When you’re looking at your comps, make sure they factor in all the nearby things—good and bad.

The comps were based on number of bedrooms, but not square footage: When running comps, the number of bedrooms and baths definitely comes into play. After all, your two-bedroom isn’t the same as the five-bedroom down the block.

But the number of rooms shouldn’t be the only thing that matters. If your home has two master suites and the comparable home has two impossibly tiny rooms, that should be taken into consideration.

“Price per square foot is another excellent tool in pricing,” says Joshua Jarvis, founder of Jarvis Team Realty in Duluth, GA.

Square footage is especially important if you live in an older, less planned community. “It helps in neighborhoods where you can’t find the exact same floor plan,” he says.

No one has sold a home in your neighborhood yet: If you’re the first to sell in a newly developed neighborhood—or your area is coming out of a housing slump—and you’re the first seller out of the gate, that might be bad news for your comps.

“Some sellers are held hostage because no one [else] has sold their home,” Jarvis says. “It’s a weird standoff where the first one that sells loses but blazes a trail for others.”

So you can at least pat yourself on the back for helping out your neighbors, right?

What if your comps don’t measure up?

The information you get should be thorough, but what if the prices seem skewed, or you get the feeling your Realtor isn’t pulling the right comps?

“Challenge it,” Seekford says.

How Comps Can Drag Down Your List Price

While not all Realtors are going to have an “Other” section, they should include information on location and surroundings, the pricing should make sense, and the Realtor should be able to tell you why she included what she did.

But don’t expect her to give you the green light to ask for loads of money just because your neighbors are living in squalor. Remember: Your Realtor wants to help you get your house sold, but she also has ethics to consider.

“A real estate professional will comment that your street warrants a higher value, but we as Realtors are under a strict code of ethics that do not allow us to comment on neighborhood demographic,” Seekford says.

But if you think that isn’t the problem—and more investigative work should have been done—ask for it. Your Realtor can run the comps again.

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