As the saying goes, there are lies, damn lies and statistics.
Comps – the comparable sales for a property in a given area – are a member of the third group and easily can fall into the first two depending on the purpose for which they’re being used.
When working with a buyer or seller, my purpose with the comps is to establish a baseline that I then can use to determine what a buyer ought reasonably offer, what the property may be worth and at what price a seller should list a home – keep in mind, those are three different figures all based on the same data.
Arriving at those three figures often are more a matter of art than science. But there seem to be some certainties in the process …
When working with a buyer, it’s guaranteed that the seller will overestimate the worth of the upgrades in their own property, will underestimate the impact of factors such as location backing to a busy road, and will have an inflated sense of their property’s worth.
When working with a buyer, it’s almost guaranteed that a buyer will use the comps to try and bring a home into their own price range even if the property clearly is above their price range.
(Before you ask, I try my best not to drift too high above a buyers’ price point for this very reason – some buyers are absolutely sure a seller will drop $45,000 off an inflated price when presented with the comps, ignoring that the seller really believes that is the value of their property.)
Sample size can make a difference. If there only are one or two sales, the process is a little trickier. If there are a dozen or two similar homes that have sold recently, I’m more comfortable with the average price per square foot as across such a large sample details such as condition, upgrades and location all tend to even themselves out a bit, giving you a decent baseline.
What both buyers and sellers need to do is be aware of the comps but not be a slave to them; realize there is room for some maneuvering on either side of the equation, within reason based on hyperlocal conditions and the competition (or lack thereof) on the market.
In a logical world, such an approach would lead to a lot more sales getting done. Then again, we tend to be anything but logical beings.