Real Estate: Looking at the comparables

Similarity

For some properties, it's easy to find good comps. Many communities are quite homogenous. If you're looking at a townhouse development, you probably won't have any trouble finding recent sales of similar homes. They were all built pretty much at the same time, and one is, for the most part, a carbon copy of the other. Nevertheless, you can have two identical townhouses sitting next to each other, and they could have different values depending on other factors such as condition, improvements made over the years and seller motivation. So even here, making a direct comparison of value isn't always cut and dry.

For detached homes, the degree of similarity becomes even more problematic. Again, in a planned community they may all have similar lot sizes and pretty much offer some sort of 3 bedroom, 2 ½ bath configuration. But planned communities usually offer a variety of models and upgrades, and lot values can carry a differ. One house might be exactly the same as another, but if it backs to a main road, it'll be worth less than one that's on a cul-de-sac backing to trees or open space.

Beyond planned communities, you then get into older, established neighborhoods where there can be a tremendous difference in home types. Take a community like Eastport in Annapolis. There, you have a very eclectic mixture of property values. You can find a $300,000 fixer-upper that might be sitting right next to a renovated home worth well over a million. As a result, the ability to find truly similar comps can vary substantially, depending on the nature of the neighborhood you're investigating.

Location

As we alluded to above, similar homes with different locations can have drastically different values. For agents as well as appraisers, the element of location can be very difficult to put a number on; it's frequently a very subjective call. How much do you give a house with some water view versus one that doesn't have that? What if one is in a good school district and one isn't? What dollar value do you add or subtract depending on considerations like condition of the house next door, the cell phone tower you can see from the bedroom, road noise, and all manner of other things that can impact the overall appeal of a property? For a buyer, much of this depends on their personal preferences. A little road noise doesn't bother some people at all. For other buyers, it could be a deal breaker. But when identifying a house as a comparable for purposes of determining another home's value, these somewhat insignificant differences can really come into play.

Also, the differences in "image" for some neighborhoods can at times render comps to be invalid. Over time, some communities have developed their own cache and established themselves to be highly desirable places to live. You could have two waterfront houses that geographically aren't that far apart from each other. But if one is in a very sought after community and the other isn't, the values can be quite different.

Condition

When looking at a comp, you're using a house that's been sold. You can drive by and make a judgment based on what it looks like on the outside, but you're not always going to know what it was like on the inside. Going back to that townhouse development, the house you're trying to value may have benefited from an owner who's given it years of loving care. But the one next door you're using as a comp may have been completely trashed on the inside. If you're uncertain about the interior condition of a house you've identified as a comp, look at how it was described in the listing at the time of sale. If you see words like "as is", it's a pretty good bet that the condition was poor. If you are still unclear about what the property was like on the inside, call the listing agent who sold it. They will usually be willing to give you some insight. From time to time, we have appraisers call us about homes we've sold and ask us for additional information on a property's condition.

Improvements

No two houses are ever exactly alike. Beyond the general condition of a home, people make changes. A house you may be using as a comp could have tangible improvements that might add to its value. It could have a new kitchen, or the owner might have added something like a bathroom. These things could have greatly enhanced its sales price and require dollar adjustments when the home is being used as a comp. There are other changes that may not be noteworthy. For example, if one house has a pool and one doesn't, that doesn't necessarily mean one is worth more than the other. An experienced agent can help guide you with regard to these types of differences and how they could affect the accuracy of a potential comp.

Seller motivation

Especially these days, you need to be careful about using a house as a comp if there are unique circumstances that might have impacted the seller's motivation. Because of the economy, some sellers have found themselves in the unfortunate situation where they needed to sell and sell quickly. So they could have "dumped" the house at below market value. Using a house that sold quickly, a foreclosure or short sale as a comp can lead you astray. That house may have really been worth much more. When evaluating the comps, be sure not to place too much emphasis on the odd man out. An unusually low selling price, or even an unusually high price, often indicates that something exceptional was going on that skewed the sale. If you're looking to justify a low price, it's tempting to point to the foreclosure sale of a house that had deteriorated by sitting empty for a long time. At times, there may be a lot of such sales in a particular neighborhood, and that could have a legitimate impact on the value of all homes in that community. But if it's just one or two, that probably isn't sufficient reason to devalue everybody's house.

In sum, identifying accurate comps can often be complicated. The fact that the sheer number of homes sold has dropped significantly makes it even more difficult because the pool of past sale has been substantially reduced. One thing to remember is that not all homes sold go through the multiple list system. Because of "for sale by owners" you may need to refer to public records in order to find homes sold in a particular area. However, public records aren't updated all that quickly, so they may not be a good source of recent sales. Remember, a comp that sold in the past couple of months carries much more weight than one that sold some time ago. This is particularly true in a market like we have now. In certain locations, a house that sold 8 months ago, might be worth 10% less today. That's an important factor to keep in mind. And finally, don't base the value of a property on a single comp. Wherever possible, try to use several. That will help average out the differences and give you a much more accurate picture of true market value.

Bob and Donna McWilliams are practicing real estate agents with more than 20 years of combined experience in the Annapolis area. Their Web site is