There are many buyers out there who do not know how to read and understand recent comparable sold properties (there are also many agents in the same boat, so if you are a buyer do not feel bad). Of course, if you are working with a real estate agent who is familiar with the neighborhood(s) where you are focusing your home buying search, then that agent will be able to help you understand how to sort through the comps and come to a valid price so that you can write an offer.
The problem is that oftentimes agents may not be intimately familiar with a neighborhood (i.e. they do not themselves know why some homes have lower sales prices than others), so it is up to the agent to really do some research. Here are the steps to follow so that you know whether that asking price is in fact valid:
1.Â Print out all recent sales in the last 6 months in the area. If there are none then your agent will need to go outside the neighborhood to find similar homes – those that have amenities and other features that are comparable to the home you are thinking of purchasing. If there are still none then s/he will need to find some that may have more or less to offer, and then weigh the factors to come to a reasonable price.
2.Â Speak with the listing agent. Every agent should place a call or visit to the listing agent whenever there is a question about value. The listing agent is the one who listed the home at that price, so the best place to start is with that person. Your agent needs to ask what comps were used to decide on a list price (in cases where it is not obvious – if you are looking in a tract neighborhood and there are 5 homes that have all sold in the same range then it is usually clear). If the listing is in a neighborhood where homes have sold across a wide value range, then you need to understand why.
3.Â Call the listing agents who sold the comparable homes. You can often get even more information this way that you may never have been able to see in photos or a virtual tour. For example, I just listed a home in a neighborhood where there is a discrepancy amongst recent comparable prices. I happen to know the neighborhood well (I live there), but a potential buyer’s agent called to ask me about the comps (I had sold a few of them) and I happen to know a lot about them and why they sold at the prices they did. I drafted an analysis on all the sold properties, and this was a big help to the agent and his clients. When I am representing a buyer in that same situation I ask for the same thing – at least a verbal analysis if someone is not willing to draft one (I of course take notes and then draft it up for my clients).
4.Â Understand that “price per square foot” is not the sole focus. If you look only at price per square foot and there are comps all over the place, you may be under-or over-valuating the home you are considering. There are many factors that need to be taken into consideration – location, upgrades, condition (even upgraded homes can be poorly maintained, and vice versa), amenities, views, lot size, and negative factors (noise, high traffic areas, hazard zones, etc.) Even two identical homes in the same community can have vastly different prices depending on the factors mentioned. You really need to get more information to understand the discrepancies before progressing. Always remember that every home has it’s own resume and story to tell, so just because another model match sold for a particular price does not mean that the same price applies to the home you are considering.
5.Â Make a chart or comparison table to understand the comparable properties. You can include features that are positive and negative, and you can then compare them to the subject property (the one you are thinking about purchasing). Seeing it on paper can really help many buyers to understand differences and feel better about making an offer that will appraise (if you are getting a loan), and that makes sense in light of the other homes that have sold nearby.
In the end it is common knowledge that those who have more information are better informed to make big decisions. Since buying a home is one of those big decisions it is imperative to do your homework. Find a smart, experienced agent in the area(s) you like and use them to help you get to the point where you feel comfortable with the values in an area by heeding the above advice. That is their job. Happy house hunting!