Hi Tim,
When running comps the best tool at your disposal is your agent.
While non-licensed people can see asking prices on MLS and also obtain market averages from their local real estate boards one of the cards realtors hold close to their chest is the actual selling prices that any particular piece of real estate trades for.
When you are buying property the numbers you want to use are `sold` prices - NOT asking prices. So many times I hear people (always FSBOs) say `well the guy down the street is asking this so I figured I can ask this`. We aren`t buying used cars here. What if the guy in between sold for $50k less? Sold prices and the trends of them are true market indicators.
So, provided you are using an agent here is what you ask them to provide you with. Get them to email you the report that shows all the features in columns with just numerical data and also another one that has pictures.
You want your agent to send you every property that has sold within a 500m radius of the one you`re interested in and also matches with the following catagories:
1. Property class. Compare condos to condos or SFHs to SFHs
2. Type - so attached homes or detached homes usually.
3. Style. This can be open to a bit of interpretation but when I do it I lump them into two different catagories. If there are lots of comps then I will leave it to just one specific style.
A. Bungalows, Bi-levels, 2 story splits
B. 2 and 3 storys, 3,4 level splits,
4. Age. I limit it to +/- five years from the subject property
5. Size. I limit it to +/- 300ft^2 from the subject
6. Days-back. So if a property sold two years ago we don`t want it. But 90 days back yes we do unless the market is very hot or tanking.
7. Finally condition or any `special` qualifyers - maybe the lot is just huge or a special view or the place is completely renovated top to bottom, or it`s next to a total dump or anything else that makes a comp extraordinary relative to the subject. I generally just discount these ones. The more comps the better obviously.
Then, I take every comp I`m using and put my excel skills to work. I come up with an average sold $/ft for my comps and then using that $/ft metric I will apply it to the size of the property I`m interested in.
That, in my opinion, is what the property is worth give or take a few grand. The more comps you have the tighter the estimate.
I include this analysis whenever I make offers and I will often include feature sheets of properties that are supportive of my offer in my package to the seller. Always include a cover letter as well.
Now, quite often the seller won`t give two beans about all the analytical stuff I do and be adament about their number or whatever. At that point it comes down to how much do you want the property and do your plans for ownership allow you to pay $X more than what the numbers tell you. Obviously the property has to work on a cash flow analysis and be free of gross defects.
Generally people tend to pay a little bit more than what the last guy sold for because sellers always think their property is worth more and if everything always sold for what the neighbors got then prices would never go up
Good luck!
QUOTE (TimCotton @ Apr 2 2008, 04:48 PM) Hi All,
I am currently a novice investor with no investment experience yet seeking advice.
My first question is, when doing comparibles (purchase price & rent alike), how much detail would you feel is required to qualify an apple with another apple?
ie: Price vs Proximity to each other vs Type vs Square Ft vs Number of Bedrooms vs Number of Bathrooms etc.
I am curious to know where experienced investors draw the line at being satisfied with their due dilligence?
Thanks in Advance
Tim
