How to Analyze Comps When Deciding What to Offer on a Home

Navigating the homebuying process can feel overwhelming, especially when you get to the point of deciding what to offer. You don’t want to overpay, but you also don’t want to lose the home to a higher bidder. It’s a tricky balance, and it’s completely normal to feel a little stressed. Fortunately, one of the most effective tools at your disposal is looking at comparable properties, or “comps,” in the area.

When you get serious about a property, your realtor will send you comps to review. While analyzing comps can seem like a bit of an abstract science at first, with some knowledge and practice, you’ll get the hang of it. This blog post will walk you through how to analyze comps and use them to make an informed offer.

What Are Comps?

Real estate comps are essentially recent sales data for properties similar to the one you’re interested in. They give you insight into the going market price for homes in the area and help determine a fair offer price. However, analyzing comps isn’t an exact science, and in most cases, it’s a subjective process. There’s no formula that applies perfectly to every home, so understanding how to make adjustments is key.

How to Find Comps

When your realtor sends you comps, they will most likely come in the form of a Comparative Market Analysis (CMA). The first step is to look at properties within a .5-mile radius of the home you’re interested in that have sold in the past 6 months.

It can be tempting to look at homes that are currently for sale, but remember, listing prices don’t always reflect the final sales price. We want to focus on homes that have actually sold—this is real, concrete data. From there, your realtor will pull together a CMA to help make the data more digestible.

What to Look For

When you’re comparing properties, you want to consider the following factors:

1. Bedrooms, Bathrooms, and Square Footage

Start by looking at the number of bedrooms and bathrooms, as well as the square footage. The closer the numbers are to the subject property, the better the comparison. For example, if a comp has 4 bedrooms while the home you’re interested in has only 3, you’ll want to adjust your analysis accordingly. Keep in mind that the number of bedrooms isn’t always as important as square footage, which gives a clearer picture of the overall space.

2. List Price vs. Sold Price

One of the first things I look at when analyzing comps is the relationship between the list price and the sold price. If homes in the area are consistently selling for more than their list price, you might need to offer more to stay competitive. On the other hand, if most homes have sold for less than their list price, you may have more room to negotiate.

3. Price per Square Foot

Price per square foot is a helpful metric to compare properties that have different layouts or bedroom counts. While it’s not a perfect metric, it gives a good general idea of how homes in the area are priced. However, it doesn’t factor in lot size or the condition of the property, so you’ll want to consider those as well. For instance, in some areas, smaller houses have a higher price per square foot because the value is more tied to the land than the home itself.

4. Lot Size

The size of the lot plays a huge role in a property’s value, especially in desirable areas or city centers. Larger lots can often justify higher prices. Additionally, if you’re considering adding another unit to the property in the future, it’s essential to understand the minimum lot size for such projects in your city. In Austin, for example, a minimum of 0.13 acres is needed to build an accessory dwelling unit (ADU).

5. Days on Market

How long a property sits on the market is another important factor to consider. If homes in the area are selling quickly, it could indicate that there’s strong demand, which might affect how much you need to offer to secure the property.

6. Condition of the Property

Condition is one of the more subjective factors when analyzing comps. Sometimes a comparable home might have similar square footage and bedroom count but is in much worse or better condition. This can significantly impact its value. Always look at the photos and check the history of the property to understand its condition. Your realtor can help you here by providing access to past listings and details about any renovations.

Adjusting for Differences

Once you have your list of comps, you’ll likely need to make adjustments. If the home you’re interested in has more or fewer bedrooms than a comparable home, you’ll adjust the value accordingly. Similarly, if the condition of a comp is better or worse than the home you’re considering, you’ll factor that in as well. This is where your realtor’s expertise comes in—helping you draw conclusions based on the data you have.

Conclusion

By analyzing comps, you’ll have a solid foundation for determining what to offer on a home. While they aren’t the only factor in your decision, they provide invaluable data to guide your offer price. Remember that while comps will give you a price range, your final decision should also take into account other factors, like market trends, the number of offers, and how much you love the home!

Bonus for Investors:

If you’re buying a fixer-upper, you’ll need to look beyond just comps for similar homes. You’ll also want to analyze ARV comps (After Repair Value comps)—homes that have been renovated and show the potential value once the work is done. This will help you determine whether it’s worth the investment to purchase a home at its current price, knowing you’ll need to spend additional money to bring it up to market value.

Analyzing comps might feel like a lot of work, but with practice, it becomes second nature. Your realtor will be there to help guide you through the process and ensure you’re making an informed, confident decision.