When trying to figure out what market value or a fair price is for a property, Silicon Valley consumers will often look at recent sales nearby which they find online, extract an average price per square foot, and then decide that this is likely to be what a house or condo is worth based on those “comps”.
First factor: the unique real estate itself (how similar are the comps, really?)
Unfortunately, it’s not that simple to figure out that home’s likely sale price or the probable buyer’s value. Homes are much more nuanced than just the average price per square foot. Unless the comparable sold property is truly comparable in every way – similar quality of updating or remodeling, similar location, similarly expensive landscaping – and the timeframe recent, too, you’ll have to try to adjust based on varying factors. (And that’s not easy – it’s an appraiser’s area of expertise. But you may say “those comps had remodeled kitchens, so that may be worth X amount of money”. You would not ignore that big of a difference.) Look at the list of homes below – how much can you tell about remodeling, landscaping, or upgrades from a simple list? Not enough.
Second factor: speed of sale, number of offers
The situation surrounding each sale is likewise quite varied. A property that gets 4 or more offers on day 7 on the market is a different situation than 1 offer on day 43. If you are writing a real estate contract on a home that is getting multiple offers, it’s not going to help you to compare it to a stale listing that sold with just one offer. It’s not just comps: it can be the current competition that largely determines the final sale price of that house or condo.
Third factor: the seller and buyer conditions, contingencies, amount of cash
But wait, there’s more! Also feeding into the recipe are the buyer’s and seller’s unique behavior, needs, and wants. If a seller insists on a “seller contingency” to find a replacement property (meaning that the seller doesn’t have to go through with the sale unless the replacement home is secured), that will pull the sale price way down, if the home is able to go under contract at all.
If a home seller makes it hard to view the property, or it is dirty and not well staged, that will probably make the house, townhouse, or condominium sell for less. There are other seller behaviors or conditions that usually hurt value, too. Sellers breathing down the neck of buyers, stalking them through the house, or not being out of the way is a big problem. Once I showed a home that was full of people, and two of them were in bed – in different rooms that we were told to enter! We could not leave fast enough.
If a buyer writes a contingent offer, meaning one with a contingency for the sale of his or her current home, that will often cause the sale price of the home to rise. Why? The seller won’t take on the extra risk without more reward. Likewise, a riskier offer with more contingencies, long contingencies, or low down payment will often bring a higher sale price.
An all cash offer with no contingencies for inspection or anything else will usually fetch the lowest sale price, because it has the lowest level of risk that the sale won’t go through.The seller will taeke less (not tons, but some), when the risk is almost non-existent.
All of these things need to be considered, if known or knowable. For that reason, you’re best off if you have a real estate professional who understands the market to assist you rather than to try to “go it alone” and figure out something as crucial as market value by yourself, without professional help. Hire an expert and you will benefit from it.
What can a buyer’s agent do to help with the comps?
Your buyer’s agent can help you to evaluate the comps, crunch the numbers, and sift through the various factors that impact sale price. The private MLS info that real estate professionals see, but consumers don’t, often reveals whether the property sold with more than one offer, and whether there was a loan or if it was an all cash sale. There can be other hints of trouble or special attraction in the agent version of the MLS, too.
Recently I saw a listing marked as a fixer on the MLS. Buyers can see that too. But in the agent comments, it stated that the home needed $65,000 worth of foundation repairs. That’s in addition to the normal fixing! These kinds of details are important. There are many other situations which could be revealed, such as the death of someone at a home, a crime there, or some other issue which you won’t know if you just see the sale price on a site like Redfin.
A good, local Realtor also understands both the subtleties of the time frame (maybe certain months had very few sales and the market took a dip), or certain parts of a neighborhood sell for more than another, making some comparable properties higher or lower than most consumers might expect.
An experienced, local realty professional also understands basic trends with sales. In Los Gatos, for instance, I know that if a home sells within 10 or 12 days, the odds are overwhelmingly strong that the property will sell for more than list price, not less, at least in homes listed for $3 million or less. If it takes more than 2 or 3 weeks to sell a Los Gatos house, it’s probably going to sell with just one offer, and possibly for less than the asking price. When looking at comps, then, it’s also really important to see how long any of them took to sell. If you’re going to bid on a home that’s only been on the market for 5 days, be careful about leaning too heavily on a comparable house that took a long time to go pending. You may well underestimate the value of the property you want to buy if you do so.
Sometimes when I’m holding a listing open, I meet buyers who volunteer that they are looking without professional representation. They believe that they will get the best deal if they go straight to the listing agent. I’m always amazed at this. Would you go to court without your own attorney representing you? Or have a tax audit and not have your own CPA to guide you? If you are the seller, or the buyer, do you not want someone advocating only for your best price and terms?
Now consider the nuances of understanding the comps. Wouldn’t it make sense that your own Realtor would help you to view the recent past sales a little differently than the seller’s agent might?
If you do not already have a great buyer’s agent working with you and advising you, do yourself a favor and find one. It doesn’t cost you more – and in fact you may save with professional representation looking out for your best interests.