3 Ways to Identify Comps
Identifying comps is absolutely crucial to your exit strategy. Investors should keep in mind that they will be selling their investment property to a consumer that will be using a lender that works with an appraisal management company. An AMC (appraisal management company) will pull comps that are within a quarter-mile to a half a mile from your investment property. So it is vital that investors find comps that are extremely similar to what the AMC will find. But, how can you ensure that your comps will be similar to the comps found by an AMC? We sat down with ZINC owner and industry expert, Todd Pigott, and he shared 3 ways to identify comps for his investment properties:
- Look in the same proximity as an AMC- ZINC recommends that investors look within a quarter-mile to a half a mile from your investment property. If you cannot find any comps within that range, you may want to back away from that property. It is crucial that a rehabber has a detailed exit strategy and not finding comps in close proximity could be detrimental.
- Look for homes with a similar number of bedrooms, bathrooms, and square footage – When identifying comps it is always important to find properties with the same number of beds and baths, but the most crucial comp is square footage. For example, you may find a comp with the same number of bedrooms and bathrooms that has slightly more square footage. This type of property is not necessarily a good comp. This is because more square footage does not always mean more value. A home that is a 3 bed 2 bath that is 1,500 square feet could sell for more than a 3 bedroom 2 bath that is 2,000 square feet. Todd explains, “When more square footage gets added on to a property, there is potentially more empty space that is wasted, this is known as circular reference.” Therefore, finding comps that have the same amount of square footage is crucial. This will give you a comp similar to what an AMC will find.
- Look at curb appeal and year built – An AMC will also account for comps that have similar curb appeal and were built around the same time. Special upgrades indeed to a home for curb appeal could raise the resale value, so it is important to consider what critical changes were made to the property. Looking at homes built in the approximate same year will also help narrow down your comps.
ZINC is here to help! If you have an investment property in mind but are not quite sure if it is worth your hard-earned cash, check out our deal analyzer or reach out to us today with any questions you may have.