I am frustrated I have been dealing with CASH buyers who compare all homes sold to determine value
How can you use comps on 1,000 sq ft home to determine price of a 3,000 sq ft home?
If your 3,000 SF home is in a neighborhood of 1,000 SF homes you are not going to get triple the value. Not even double the value. I’ve come across this situation a few times, homeowners think they got a big payday coming and nothing I can say will change their minds. Not being able to sell the house will in time bring them down to realty.
Its interesting how that works.
First off, a 1,000 sq ft house sale is NOT a “comp” for a 3,000 sq ft house sale.
For any house to qualify as a “comp” it should be located within a mile of the subject property, within 10% of the subject property’s size, and sold within the last ninety days.
Otherwise, if there are no sales of houses that fit those limitations, you don’t have “comps.”
In that case, it’s more a matter of looking further away, until you find a sold house that resembles the subject property and consider it a “bad comp.”
At the same time of course, all sorts of things can affect the value of a “comp.” A gated community, age, design, features, amenities, and finish, etc.
I mean one 3,000 sq ft house might be a stucco box with bedrooms, while the other one has a media room, 3 car garage, zoned air, and three fireplaces. Which one is likely to be worth more?
All things being equal (age, location, amenities), you can figure that a 3,000 sq ft house will sell for roughly 30% less per sq ft than a house half it’s size.
All said, I would just look for the closest 3,000 sq ft sold house, that seems similar to the finish and amenities as what I’ve got, and use that as a gauge of value, and call it a day. That’s what an appraiser is gonna do in that situation…
Forget these low-ballers for now.
Here is my two cents as well. Be very careful about getting your comps off of Zillow and Trulia. Redfin recently conducted a study of these two. Zillow can provide you with a free estimate. But how accurate is their estimate? According to Zillow’s own Zestimate data accuracy report, they have a median error rate of 6.9%. In fact, further down in their report they state that only 38.3% of the time are they within 5% of the actual sales price. The reality is that they are 20% off the actual sales price 84.7% of the time.
In the wholesaling business, a 20% mistake in pricing is suicidal. Follow the Zestimate’s price recommendations and you could very well lose all your profit on every deal. You need to base any purchase decision on actual verified comps along with active listings from the local MLS.
just an idea…
I have a Realtor friend who’d I would send all unmotivated potential sellers responding to my mailers, in return for the business he’d run comps for me as needed.
That is a great business move. So many times, investors and wholesalers are all about getting real estate agents to do all the comp work with very little incentive but a stack of low ball offers. But… sending over what we would consider as a “dud deal” to real estate agents is just the carrot that is needed. Great idea.
Javipa summed it up pretty good.