Sell Faster Using a Comp Book

You will want to stick with information about the three key factors: location, size (square footage), and the number of bedrooms and baths. When comparing locations stick to your “defined geography.” Defined geography is the boundaries of your local market, typically within a one-mile radius or less, and the area where houses are similar to yours.

The comp book will be your best friend throughout the selling process because it provides the factual data around which you will base not only your decisions, but also your advertising, marketing, and sales pitch. This will be core data that will be indisputable by any professional (agent, appraiser, home inspector, lender, or insurance agent) you may come across throughout the transaction.

The comp book should contain the following information:

Sold Homes
List homes most similar to your own in terms of location, style, size, and utility. In other words, if you have a ranch, try to find other ranches. If you have a three-bedroom home, try to find other three-bedroom homes. For purposes of comparisons, the houses on your own block are better than houses farther away, but anything in the same subdivision will generally suffice, so long as it is similar in size. The most recent sales are the most relevant, and while appraisers will generally consider sales six months old in a normal market, you should stick with the most recent (two to three months old) sales in a declining market. If you can’t find such recent comps, then you can look at more recent sales of homes that are different in style and within a radius of up to one mile, assuming you don’t go outside the neighborhood boundaries. You can go to surrounding neighborhoods so long as they are similar in schools, price range, size, style, and age of homes.

Under-contract Homes
Using the same guidelines as above, you want to know all of the relevant properties that are currently under contract. This will tell you where the market is currently heading in terms of current demand. Note the difference between the asking and selling prices of these homes, which can be obtained by calling the listing agent’s office.

Homes for Sale
In a declining market, homes currently for sale are even more important than homes sold, for purposes of comparison because they will indicate the pricing trend. In fact, you should check for new homes listed for sale and current homes for sale price changes every week in your neighborhood to keep an eye on your competition.

Neighborhood Information
Gather all pertinent information about schools, zoning, homeowners associations, neighborhood amenities, local shopping, and attractions.

Expired Listings
Look at houses that were listed for sale and did not sell. The question you have to determine is “Why did it not sell?” In most cases, the answer is that the property was mispriced. However, many times the problem was a lack of effective marketing. It is a good idea to determine which scenario occurred. The owner may have been uncooperative with the agent in showing the property or keeping the property in a presentable state. The agent may have either made an error or done a poor job at listing the property, limiting the full exposure to the marketplace. Since buyers use the computer to screen properties, poor or missing photos, wrong schools, the incorrect size of the house, wrong number of bedrooms, and other information can result in fewer buyers who are interested in viewing the property. Speaking to the owner and the listing agent will give you two of the three possible versions of the truth, the last of which is your job to determine!

Bracketing
Bracketing is the idea of determining where your house is positioned within a group of competitors, whether sold, under contract, or for sale. For example, you would want to find a half dozen properties superior to yours and a half dozen inferior to yours within the criteria discussed above; then analyze the prices to determine where you fit.

The Quantity of Data
Obviously, you don’t want to over-analyze or under-analyze the information in your market. We’ve found that a comprehensive amount of data at the micro-view level would be the best dozen sold, the best dozen under contract, the best dozen expired listings, and the best dozen houses for sale. The micro-view looks at the neighborhood level and how your home fits in. At this level we’re going beyond the market factors in general and looking at particular values within your specific geographic area—the closer to your house, the better.

The Quality of the Data
Bear in mind that all sales are not what they appear to be. Verification of the data is often done by picking up the phone and asking the agent if the sales price was the actual sales price or whether it included seller concessions such as monies for closing costs or repairs or other miscellaneous items. Occasionally, a sale price will make no sense and will be way out of line with what would seem to be a reasonable value. In these cases, simply disregard that data as an anomaly. Inter-family sales, foreclosure sales, and estate sales are some examples.

Timeliness of Data
The timeliness of this data must be considered in relation to the macro-view, also known as the “supply quotient.” The supply quotient is simply a ratio of the number of homes for sale in your area divided by the number of closings in the last 30 days. The supply quotient is a very useful indicator of supply and demand in your neighborhood.
It helps you estimate the number of months it would take to sell your home. For example, if 60 houses are for sale and 10 have sold in the last month, then the supply quotient is 6. Thus, if no other houses went on the market, it would take 6 months to sell all the current inventory.

A supply quotient of six is a market in which sellers and buyers are balanced and equal in force. The lower the quotient, the better the market is for sellers, hence a seller’s market. The greater the quotient is above six, the better the market is for buyers, which indicates a buyer’s market. In other words, if the market is changing as determined by the macro-view, then an appropriate time-value adjustment will be necessary at the end of our calculations. In real estate, pricing the property with an eye on the supply quotient and the greater market forces is key to avoiding the unrecoverable mistake of mispricing the house when it first goes on the market.

Lastly, the uniqueness and rarity of your type of property can have positive value implications, assuming that the buyers in the market will appreciate them. This adjustment is determined here and now at the micro-level. For example, assuming you do your research and estimate your property’s worth at $250,000, and you also know that prices are declining one percent per month, you need to be able to price your property to keep ahead of this curve.

The Defined Area
Appraisers and loan underwriters generally look at comparable sales within one mile of the subject property. However, in populated cities, one mile may be too far. In rural areas, one mile may be too close. Within a subdivision, you’ll find variations in lots that affect privacy, road noise, or sunlight. These lot variations won’t affect the valuation unless an extreme difference exists. For example, if a row of houses backs to a major road, this may drop the value of the house by as much as 10 percent. If a row of houses backs to power lines or a garbage dump, the discount may be even more substantial.
On the other hand, a great view may push values in a positive way, of course. A location on a golf course, lake, ocean, or simply having a killer view may push values up by 25 percent.

Take note of the tax-assessed land value versus the improvements, then note what the average lot premium or discount amounts to. You can check the lot premium in new home developments by asking the builder. In more established areas, the home sale records of similar houses in the neighborhood will be reflected in the prices of houses sold that are the same model, but have different lots. Amateurs often make the mistake of comparing houses that are across the street from each other, overlooking the fact that the lots have significant variations.

Remember when trying to sell a house fast in a slow market, knowledge is power. Organize your information and develop a comp book with data about your market and you will be a big step ahead of the other sellers in your neighborhood!

Excerpt from William Bronchick and Ray Cooper’s How to SELL a House FAST in a SLOW Real Estate Market, published by Wiley, 2008.

William Bronchick of Denver, Colorado is an attorney, author and active investor in residential housing. He is the President and co-founder of the Colorado Association of Real Estate Investors. For more info click over to www.legalwiz.com .