How to come up with comps?

Dan,

What I did is when I set up a relationship with my Title Company, they allowed me online access to their providers. NOw, If I see a property, I just log in, pull the report, and I can view it , e-mail it, or print it. I also found it to be more accurate and ogjective then what the agents were providing, as I can base on sale date, price and year built, as well as square footage and beds/baths.

Hope this helps.

Scott

Dan,

You'll need more than comps to determine accurately FMV, it's only part of the equation. First, a word about realtors, yeah some of them can be extremely rude, however they are crucial to your success. Keep looking and you'll eventually find one who works exclusively with RE investors. Google them in your area, try www.realtytimes.com to access local brokers. Or, do as I did, attend a local REI Club meeting in your area and ask other investors who they recommend using---I walked away with a list of 17 in my target area. Once you get a list call each one and find the one or two who is not afraid to put in low offers---that is key.

On discerning FMV, If you don't have a realtor who can provide you with accurate comps you can start with these sites, www.zillow.com, www.trulia.com, www.cyberhome.com, or Dean's new toy at www.totalviewrealestate.com . These sites will provide comparable sales in your target area and within the vicinity of the property you are researching. Do the following:

1. Get 6-9 comps (just punch in your target house address) preferably sold comps within the last 3-6 months, and within one mile from your target property---these sites will also provide that info.

2. Take each comp price and divide it by the total sqft for that house. This will give you it's cost per sqft. Repeat this step for each comp. Then select the best 6 comps that best fit your target property's description.

3. Throw out the highest and the lowest of the remaining 6 comps (remember you are looking at sqft here). If you can only get 3 comps you'll have to keep all 3 and work with that---but try to get at least 6.

4. Add the cost per sqft of each of the remaining comps together and divide it by the number of comps you have used---if it's 4 then divide by 4. This will give you the average cost per sqft.

5. Finally, take the average cost per sqft (from step 4) and multiply it by the total sqft of the house you are evaluating. This will result in the "ESTIMATED" fair market value for your prospective property.

Now you have a good starting point on which to base your offer. You need to get your boots on the ground and see what that thing is really worth. You'll need to inspect it and estimate any repairs to be completed. Don't put too much stock in those comps even if the're under 1 month old---get in there and find out what that thing is worth.

Also, don't forget the other cost such as holding cost, Realtor's commission, closing fees, profit, etc.. You'll want to subtract those cost from your arrived at EFMV from step 5 to reach your offer price.

I hope this helps.

Best regards,

southstar

wow i never knew about that, thx alot southstar

With today's market you do not want comps that are more than 3 months old. The market is too volatile to use 6 month old comps.

KimmyJ
Press on...

actually one more question, the real estate sites when searching out comps dont show the number of beds and bathroom and just show sqft, lot size, and year built, isnt it important to know the # of beds and baths to get an accurate assessment? i know in your example you said you were focusing on sqft.

i always go to zillow.com which gives a fairly good market value of the properties

Question for u what if u live in area that has no comps within the last 3 months some of the areas I buy in haven't sold anything comparable in over a year. So I have been using listing comparibles and knocking off 20%. I live in a rural area and totalview, zillow, and the others have little to no information I have to research it out at the courthouse. Just wondering if there is an easier way. My appraiser sometimes has to use comps over a year old and I can guarentee you it is higher than it should be.
Thanks for your help in advance.
Donna

Dan,

You have a discerning mind, and that will take you far in this business. It will also keep you out of bad deals. I work for an Architectural firm, and cost per sqft rules. If you don't believe me sit down with a set of construction documents and do a "take off"---it drives everything, and it has yet to fail me in my seventeen deals I have done. However, as I stated it is only a starting point, and you are correct, bedrooms, baths, countertops, floors, etc. are all important in establishing FMV. With some detective work you can uncover that info on those web sites, but this is where your Realtor comes in handy. If you can't get it there do it the old fashioned way---boots on the ground. If I have any doubt on valuation I will make a site visit to each comp I am using and check things out myself. Actually Dan, I automatically do that if, and only if the comps I am using are more than 6 months old. I am strictly a buy & hold investor for cash flow, appreciation and tax deductions. I don't mess around with assignments it's a waste of precious time, besides I can't afford to get it wrong, and quite frankly neither can you.

Dan, the method I gave you I have been using in my architectural work for 22 years, and in my investing activities the last 7. I actually got it from a professor of mine at Purdue University who taught me everything I know about real estate investing. He taught the course on CPM or "Critical Path Method" which teaches you how to do accurate building estimates and construction scheduling. This comes in handy with my reno work as well. I don't think you need to run out and take a course on CPM unless you plan on becomming an Architect, but I do think you need to find yourself a good realtor. They will provide you with most of the info you need---FREE. And if they can't I'm afraid you'll have to get out into your investing neighborood. It's a great way to get and know your target area and discover some unsuspected deals.

Here is an example. I buy in the Indianapolis market. Recently I stumbled upon a prpoerty in Greenwood a bedroom community just South of downtown. I couldn't believe my luck. This property was 8 years old, in mint condition, and had been on the market for 145 days---can you say motivated seller. Although this property would make a lousy rental and did not fit my investment criteria I knew I could lease option it and make a killing. The problem, it was the largest house in the neighborhood by over 1300 sqft and it wasn't priced properly. I could not get a comp under 2 years so I called my property manager in Indy and he furnished me accessment values for 10 properties with similar characteristics (less the sqft) within 1 mile. It took almost the entire day and a few hours the following day, but I investigated each one of those comps to arrive at my valuation of $207K for that property.

I checked comparable sale prices, not sold but properties currently on the market to check what the ratios are between the area's accessed values vs the area's sale prices. Dan believe it or not I found out later, from one of my Architectural collegues, that this is an old appraisers trick they use when they can't get accurate comps. The best part is there's a formula for this. I have not been able to find it, but I'm getting close---I'll keep you posted on that. I also asked these questions when I spoke with the homeowners of the comps: What do you think your property is worth and what would you list it for today? What are properties renting for and what would you rent it for today? My property manager provided accurate info on this question which confirmed the homeowners answers. Have you had an aprasial done within the last year? To my surprise 3 did. How much is your property insured for? Then I added back in their land cost (which is not insured) and this gave me an idea of the value of each property. Later, to cover all my bases I had my realtor run, for FREE, a CMA or certified market analysis in which she uses listing prices only. Armed with this info I was able to make an educated guess of the FMV at $207K. It took me 10 hours of running around that neighboorhood on a weekend, but well worth it.

I decided to purchase the property, and had an appraisal done by a Fannie Mae appraiser---because I heard they are bringing them in on the low side. It came in at $212K---wow! I was within $5K. By the way the totalview had it's FMV at $170K---an abominable 20% off. Zillow had it at $194K, better, but still off. I purchased it for $188K and lease optioned it for 3 years with the purchase price set at $228K. It rents for $1,425/mo and cash-flows for $322 per month. My Tenant/buyer put 3.5% down as option fee---$7,980. That will be applied to their purchase price when they excercise their option, of course if they don't it's mine. In the mean time I have nearly 8 grand for my next deal. I made $5,159.20 per hour on that deal. And that does not include the added tax benefits.

Because of that weekend in the neighborhood I picked up 3 additional leads and currently making an offer on one, and you guessed it---I had to do that whole routine all over again, but it only took 3 hours this time---of course it wasn't raining.

Dan, I hope this helps. Go out and establish a good working relationship with a realtor in your area, and make it happen. Keep asking the right questions and you'll get there!

Best regards to all your real estate endeavors,

southstar

Great question! I learned a lot from this post.

Dan I also live in NYC, where about are you? Maybe we can help one another.

deal! Congrats Southstar! That's the point I want to reach. I really enjoyed reading your thoughts on this.