Many of our clients who are more seasoned real estate professionals may find this article elementary — but I also know that there are many of you just getting started in real estate who might benefit from a quick lesson on how to formulate your own opinion of value on a property.
For residential real estate especially, the best way to determine a property’s value is to compare it against similar properties. These similar sales are called sales comparables, or “comps” for short. Typically, a good comparable is geographically and physically similar to the property you are valuating (referred to as the subject property), and was sold fairly recently. Essentially, the comparable must be competitive with the subject property.
Geographic and physical similarities, along with the definition of “recent” when it comes to the date of sale, certainly vary based on the market you’re in. For example, a single-family home in Nassau County, a mostly suburban area, a good comparable search in GeoData Direct would consist of the following:
– 1 mile radius or less from the subject property.
– Sold within the past six months.
– Same school district as the subject.
– Building square footage (or gross living area) reasonably similar to that of the subject.
– Similar number of rooms/baths.
– Same architectural style as the subject.
For urban areas like New York City, you normally wouldn’t use a 1 mile radius to search for comps. You’d more likely try a half mile, or even a quarter mile in some areas. For rural areas, you would need to go further out than a mile. In areas where there aren’t many sales, going back further than six months for sales may be required.
Of course, no two properties are identical. This is why appraisers and other valuation experts use adjustments, which essentially allows them to compare apples to oranges, or for a better analogy, compare Fiji apples to Gala apples. An adjustment is a dollar value or percentage that gets added or subtracted from the sales price of a comparable, in order to speculate what a comparable would’ve sold for if it had the same attributes as the subject.
GeoData Direct is an invaluable source for putting together a list of comps on any property in the greater New York area. Our property reports contain all the information you need to find appropriate comparables and easily compare them to a property you’re looking to sell or buy. Stay tuned to the GeoData blog next month for a follow-up article explaining how to dig out information pertaining to the circumstances surrounding a sale and how that information can impact the appropriateness of a recently sold property when using it as a comparable.