COMPS: TOP 3 REASONS THEY MAY BE IRRELEVANT
February 14, 2017 | Richard Sites
“Comps”. This is a term that gets thrown around a lot in residential real estate. And while the “comps” may have some usefulness, let’s talk about 3 reasons they may be irrelevant.
“Comps” is short for comparables, or comparable sales. Most of the time we hear phrases like, “have you pulled the comps?” or “what are the comps?” This is because buyers want to know what similar properties in the area have sold for recently to make sure they are not overpaying. However, in the 3 cases below the “comps” may be irrelevant.
When inventory is limited the “comps” are really irrelevant. This is why estimates on items auctioned off at Christie’s or Sotheby’s are often surpassed by the final sale price. When an item is the only one available people who want it will pay whatever it takes to acquire it.
This applies to homes this way: Suppose you want to live in a certain community and there is only one house for sale in that community. The sellers can ask for, (but may not get) any price they want. So, a buyer who wants to live in that specific community will have to pay for that privilege.
A lender may not see it this way, but that’s another story.
This is why we see multiple offers over the listing price in highly desirable communities and why corner units in condos always command a higher price than interior units.
When home prices are rising rapidly, the “comps” may be irrelevant. You can’t buy a house that has already been sold, so you have to pay what the current market dictates.
When you combine rising prices with limited inventory you can see why “comps” are irrelevant.
Paying Cash for a Home
If you are buying a home in a cash purchase, the “comps” are irrelevant since you can pay whatever you want for it. Even if you are financing the purchase you can pay whatever you want but a lender may not lend you all the money you want so you would have to change your finance percentage.
Either way, as always, cash is king.
The Take Away
It’s OK to use the “comps” but keep them in perspective. One good way is to look at the per square foot sale prices of homes similar to the one you are considering buying within a 10 mile radius. This will tell you what buyers in general feel homes are worth.
If you would like to have a conversation about meeting your real estate objectives, contact me at 561.762.4073 or just use the form below.