What Is The Best Way To Go When Using Comps? Part II

Part II

As we talked about in part 1, using comps requires a little more than just relying on data. I also talked briefly about the sophistication of the valuation model. The truth is, it just is not that sophisticated. Basically what I am saying is do the comps (just use the more recent comps and do it yourselves) don't be lazy and use the valuation but use the comps that are the most current. Keep in mind, you better caution yourself to make sure the comps you are using are good comps. Let’s revisit the definition of a good comp. You know the definition of a comp is a comparable sale. Comparable is a key word and there are three things that make up comps. One of those is it has to be a recent sale (and let’s face it, recent is all relative to where you live right now). It has to be recent and no more than a year old in any market (probably a lot less than in most markets).

Secondly it has to be close in proximity and close in square footage. Close in proximity is relative as well. Subdivision houses are not too hard in finding comps. Don’t think this is irrelevant. Houses that are not in subdivisions are much more difficult because they can't find houses that are close that are similar to them. And then with the square footage there can be a whole slew of problems!

Some places have a problem with that because they don't post the square footage so they go by bedrooms and baths. You also have to be careful that you are comparing houses that are in excellent shape to ones that are old and in excellent shape. This is so important because house that sold in the past are sometimes not in such good shape. And this does affect you because they sold for less than our retail value in good shape and you don't see that on paper. When real quest prints one of these things out it doesn't say that the house needed $15,000 worth of work on it. So you have to make sure that what you are comparing to is a true comp. Once you do that use your comps wisely and enjoy your houses!

When it comes to real estate investing, I highly recommend information from Ron LeGrand. For valuable information regarding investing in homes visit RonLeGrand.com. You can also find useful investor resources in the free newsletter at MillionaireMakerNewsletter.com