For anyone flipping houses, one of the most important aspects of determining profitability is accurately assessing the value of a property before and after renovations. This is where real estate comparables, or “comps,” come into play. Comps are recently sold properties in the same area with similar characteristics to the property you’re considering flipping. These comparable sales provide critical data on the current market value, helping you set a realistic purchase price, renovation budget, and after-repair value (ARV).
In this guide, we’ll explain how to find and analyze comps effectively, how to use them to estimate ARV, and why understanding comps is key to a successful flip.
1. What Are Real Estate Comps?
Real estate comps, short for “comparables,” are properties that have recently sold in the same neighborhood as the property you’re evaluating. These properties are used as a benchmark to help estimate the market value of the property you plan to flip. The key to using comps successfully is to find properties that closely resemble your target property in terms of size, location, condition, and features.
Key Factors to Consider When Finding Comps:
- Location: The comp should be in the same neighborhood or within a close radius of the property you’re evaluating.
- Size: The square footage of the comp should be within 10-15% of the size of the property you’re assessing.
- Number of Bedrooms and Bathrooms: Similar bedroom and bathroom counts are crucial for accurate comparisons.
- Condition and Age: Look for comps in a similar condition—whether fully renovated, move-in ready, or in need of repairs.
- Lot Size: The size of the lot should be comparable, especially in areas where land size is a significant factor.
- Sale Date: The more recent the sale, the more relevant the comp. Aim for properties sold within the last 3–6 months, as older comps may not reflect current market conditions.
By analyzing comps, you can get a realistic idea of what similar homes are selling for in the area and use that data to inform your purchase and renovation decisions.
2. How to Find Real Estate Comps
Finding the right comps requires research, but there are several tools and resources available to make the process easier.
Use Online Real Estate Platforms
Real estate websites like Zillow, Redfin, Realtor.com, and Trulia allow you to search for recently sold properties in your target area. You can filter these results by size, price, number of bedrooms and bathrooms, and other factors to find homes that are comparable to your property.
- Zillow’s Sold Listings: Use Zillow’s filter to view recently sold homes and compare them based on location, size, and features.
- Redfin’s Comparable Homes Feature: Redfin provides an easy way to view comparable properties with detailed data on the sold price, date of sale, and property details.
Work with a Real Estate Agent
A real estate agent with local market expertise can provide access to the Multiple Listing Service (MLS), which contains detailed information on recent sales, including data not always available to the public. Agents can help you identify the best comps based on your property and its specific characteristics.
Look at Public Records
County assessor’s offices often provide public access to property sale records, which can be used to find recent sales in your area. This method may require more manual effort, but it’s a reliable way to get accurate data.
Drive the Neighborhood
While online tools are helpful, driving through the neighborhood can also be useful. You may spot properties that have recently been renovated or sold that match the profile of your flip. This can give you a sense of the market and help identify potential comps.
3. How to Analyze Comps
Once you’ve found several comparable properties, the next step is to analyze the data to determine a realistic estimate of your property’s value.
Key Metrics to Focus On:
- Price per Square Foot: One of the most critical metrics is the price per square foot, which provides a standardized way to compare properties of varying sizes. To calculate, divide the sale price by the square footage of the property.
- Example: If a comp sold for $300,000 and is 2,000 square feet, the price per square foot is $150. If your flip is 2,500 square feet, multiplying $150 by 2,500 gives you an estimated value of $375,000.
- Days on Market (DOM): This metric indicates how long it took for the comp to sell. Properties that sold quickly may indicate a high-demand market, while those that sat on the market for a long time may suggest overpriced homes or a slow market.
- Renovation Level: Compare the renovation level of the comp to your project. If a comp was sold as a fixer-upper, its sale price will be lower than a fully renovated home. Adjust the value of your target property accordingly.
- Adjust for Differences: Even if a comp is similar, there will be differences that need adjusting. For example, if the comp has a pool and your flip does not, you’ll need to reduce your estimated ARV accordingly. Likewise, if your flip has a larger lot or more bedrooms than the comp, increase the estimated ARV slightly.
Example of Adjusting for Differences:
- Comp: 3 bedrooms, 2 bathrooms, 2,000 square feet, sold for $400,000.
- Your Property: 3 bedrooms, 2 bathrooms, 2,200 square feet.
- Adjustment: Add value for the additional 200 square feet using the price per square foot calculation.
By making these adjustments, you can arrive at a more accurate estimate of your property’s value.
4. Using Comps to Estimate After Repair Value (ARV)
After you’ve found and analyzed your comps, you can use the data to estimate the after-repair value (ARV) of the property you plan to flip. ARV is the projected value of the property after renovations are complete and is a crucial figure for calculating your potential profit.
Steps to Calculate ARV:
- Find the Average Sale Price of Comps: Based on the comps you’ve identified, calculate the average sale price of homes that closely match your target property.
- Example: If your three comps sold for $380,000, $400,000, and $420,000, the average sale price is $400,000.
- Adjust for Your Renovations: If your renovations will add value beyond what the comps offer, adjust your ARV accordingly. For example, adding a bedroom, upgrading the kitchen, or modernizing bathrooms can increase the property’s value.
- Calculate the Price Per Square Foot: Use the price per square foot from the comps to estimate your property’s ARV based on its square footage.
- Finalize the ARV: Combine the average sale price of the comps with any adjustments for your property’s unique features to arrive at your estimated ARV.
5. The Importance of Accurate Comps in House Flipping
Accurate comps are critical to the success of any house flip. Using reliable, recent comps allows you to make informed decisions about:
- Purchase Price: You’ll know how much to offer on a property to ensure it’s a good deal.
- Renovation Budget: You can create a realistic renovation budget that aligns with the expected ARV.
- Profit Margins: With a solid ARV estimate, you can calculate your potential profit and determine whether the flip is worth the investment.
Avoiding Common Mistakes with Comps
- Using Outdated Comps: Real estate markets can change rapidly. Make sure you use comps from within the last three to six months to reflect current market conditions.
- Ignoring Location Differences: Even within the same city, different neighborhoods can have vastly different values. Be sure to compare properties within a close radius to ensure an accurate assessment.
- Overestimating Renovation Value: Don’t assume that all renovations will add dollar-for-dollar value. Be realistic about how much your upgrades will actually increase the property’s market value.
Conclusion: Leveraging Real Estate Comps for Flipping Success
Understanding and effectively using real estate comps is an essential skill for any house flipper. By finding the right comparables, analyzing the data accurately, and using it to calculate ARV, you can make smarter buying and renovation decisions that lead to higher profits. With careful planning and a solid understanding of the local market, comps can provide the insights you need to ensure your house flips are successful and profitable.
