Comparables

Use Comparables to make sure you don’t pay too much for your home.

Buying a home is normally the biggest investment you will ever make. Because a home is such an expensive purchase, it is critical to look at comparable homes to make sure you don’t pay too much. In addition, you might lose the home of your dreams if you don’t offer the right price.

To know what price to offer, you have to have the best comparables. If you don’t have the best comparables then you are making a big decision based on the wrong information, and it could cost you.

The goal of searching for comparables is to find 3 or 4 recently sold properties that are most similar to the property that interests you. You can include Active properties and properties In Escrow in your comparables, but you have to be aware that until the property is sold it could be priced wrong, and with properties In Escrow you don’t know what it will sell for.

When I do a comparable search, I start with the basics. For Single Family homes, the basics include what is happening in the same neighborhood. For Condos, it would be a comparison in the same building. Sometimes you get lucky and don’t have to search further, but most of the time the search needs to be refined more.

For example, I might find sold properties in my search results that are a lot older or newer than my subject property. I also look at the interior square feet, and the size of the lot. If a property is a lot larger or smaller, I want to eliminate it. I might also filter my search by bedrooms and bathrooms, and with Condos, I might have a minimum floor number.

OahuRE.com Example

The screen shot below is from my Website OahuRE.com. Notice the Land size and Living size is similar, but you have to be careful because some properties are built in the 1940’s, and some in the 1980’s. Notice the least expensive was built in 1948, and never remodeled, which tells you why it was the least expensive. Even though the size might be similar, if you are comparing this property to one built in the 1980’s, you have to take that into consideration.

Other things to note on the above screen shot from OahuRE.com include the Sold Date. The Sold Date is sorted with the most recent on top. Remember the goal is to find 3 to 4 recent sales so having the most recently sold ones on top helps you find comparables faster.

The Sold Ratio is the Sold Price divided by the List Price. This is important because it gives you an idea of how much lower than the List Price sellers are selling for. For example, if most properties in the neighborhood are selling at 96% of List Price, if you make an offer that is 85% of List Price, you would expect your offer to be either countered or rejected.

The Sold Land and the Sold Living are the price per square foot of the Land and Living based on the Sold Price.

The LT is Land Tenure. FS stands for Fee Simple which means you own the land. LH stands for Leasehold which means you are renting the land. If the property is Leasehold and you can’t buy the land to turn it Fee Simple, then it is just like renting. Actually, it is even worse than renting as your property value will go down. There are situations where Leasehold makes sense but that would be a separate article.

BR is bedrooms and they are linked. For example, if you click on the 4 bedroom in the sample you will then only see 4 bedroom homes.

The Cost Sq. Ft. after Land shows you the Cost per Square Foot of Land based on the List Price, not the Sold Price. I give both the Sold Cost per Square Foot and the List Price Cost per Square Foot to help with your comparables. The same goes for the Living Square Feet.

Year Rem is the year it was remodeled. This could be a full remodel or just a partial remodel.

Digging Deeper

Once you feel like you have the best comparables then you have to read deeper into them. There is a story behind each home, and the facts and photos help tell you this story.

For example, the first thing you would want to look at, in addition to the Sold Price, is the Sold Date. You have to adjust your comparables based on what has happened to the market since the property was sold. In a down market, a property that sold for one price in 2008 might sell for a lot less today.

You also have to closely look at Interior Square Feet and factor that into the price. Yes, a property might have sold for more, but perhaps that is just because it is larger, even though your subject property is in better condition.

Property Condition

Property condition is another factor to analyze closely. Make sure you are not comparing a tear down with a property in excellent condition. Keep in mind the property condition is subjective. Many times what a seller thinks is excellent condition might be a step lower in your eyes.

Location and Views

The location and view can play a big part in the pricing even when all the other factors being considered are the same. Ocean and Mountain views are always popular, and being next to a busy street or anything else that creates a lot of noise is not attractive so the home would sell for less.

Photos

Once you have narrowed down your comparable properties, you can study the photos to see if the properties look and feel similar on the outside and inside. By clicking on any address you can use Google Map to see if any of the properties are on a busy street, vs. a side street or cul-de-sac. The new Google Street view will let you know if there are any vacant properties nearby, or other issues in the neighborhood.

What happens if there are not enough comparables in the neighborhood?

Sometimes you won’t find enough comparables in the neighborhood and you need to search nearby neighborhoods that are similar in price range to your subject property. If you are very familiar with the local neighborhoods you might know which ones to add to your search. If not you could use my Website OahuRE.com which lists other neighborhoods that compare to the neighborhood of your subject property. Nearby neighborhoods are chosen, not just based on location, but also by average price for that neighborhood.

Single Family Condos?

Another factor to look for in Hawaii is many detached Single Family Homes are actually Condos. They call them Condominium Property Regimes, or CPRs. CPRs might have some common land, or they might be built very close to each other. Normally you will find a CPR sells for less money than a pure Single Family home, so make sure if you are not buying a CPR that you don’t use CPR homes in your comparison. If you are buying a CPR home, then make sure you are comparing it as much as possible to other CPR homes in the area.

What you can learn from expired listings

Most buyers don’t consider expired listings in their comparables, but they can tell you at what price homes are not selling. So if you see an expired listing that did not sell at a similar price as your subject property, that could be a sign that the subject property is also overpriced.

Available Inventory

Supply and demand always play a big part in a property’s price. An area or building that has a lot of demand and very little supply will sell for more.

OahuRE.com Example

The screen shot below from OahuRE.com shows you some of the comparable options that you might want to use. Notice the first set of comparables are all from the same Manoa Area neighborhood, but the second set of comparables opens it up to some of the surrounding neighborhoods. The 20% or 10% more or less allows you to tighten up the range so your comparables are closer to or further away from the subject property. There is also an option for including the year built so you don’t get much older or newer properties that are not good comparisons.

So now you have an idea how to use comparables to come up with the right offering price so you won’t overpay for your next home. If you have any questions, you can go to my Website http://www.OahuRE.com and hit the contact page to Email me.