Comps

What it is

Comps are comparable properties — recently sold houses similar enough to yours that their prices tell you what your house will sell for after renovation. When I walk a property I’m trying to figure out the after repair value based on what renovated houses in that same area have actually sold for. That’s the comp.

Three things make a valid comp: features, dates sold, and proximity.

Features: I’m looking for properties within about 200 square feet of mine — appraisers use 200 square feet, and I want to match what the appraiser is going to do. Matching bed/bath count, matching style, matching age, matching condition. Basement and ADU square footage doesn’t count the same as above-grade. A two-story is not the same as a ranch at the same square footage.

Dates sold: within six months. You can push to 12 months in a stable market and adjust for appreciation. But you can’t use a for-sale listing. People can try to sell a house for whatever they want. That doesn’t mean they’re going to get that price.

Proximity: same neighborhood. This is the most important one and there’s no fudge factor here. I’ve seen out-of-state investors buy houses thinking they had great comps at $350K and the house was literally on the wrong side of a major road. It wasn’t worth near $350K. They had to hold it for years. I know where the boundaries are because I drive through the neighborhoods. You have to trust your feel — walk the neighborhood, look for where styles and ages change, look at the major roads and railroad tracks, and then use census tract maps to confirm. Census tracts are what a lot of the software uses to define neighborhoods and they actually align with how the market feels.

Why it matters

Forecasting the wrong ARV is the most costly mistake in house flipping. I did it. Bought a house, thought it would sell for around $800,000, listed it at $795,000 — based on comps I ran before purchasing — couldn’t sell it, did multiple price cuts, finally took an offer for $667,500. I lost my butt big time on that one. I lost money in the six-figure range. And I made other mistakes on it, but this thing was dead before it even started because I used wrong comps.

The second most common mistake is confirmation bias — you work hard to find a deal and you want it to work, so you take out the comps that lower your ARV and you keep the ones that confirm your number. You have to be unbiased. If you can’t do it yourself, get a real estate agent to look at them, or find another investor to check them.

Third is using for-sales or pending sales as comps. Don’t. A list price is a wish. You want sold prices because that’s a fact — that’s what someone actually paid.

How it shows up

I do a quick comp first. I’m looking at Zillow, Redfin, or a paid platform if the state is non-disclosure. I roughly figure out dollars per square foot by averaging the sold comparables and multiply by the subject property’s square footage. That gets me a ballpark. Most of the time the quick comp is close enough to know if I’m going to dig in or move on.

When I’m actually buying a property, I’ll refine further — run the census tract check, cut the out-of-place outliers, fudge no more than one variable at a time. If I fudge dates, I don’t also fudge features. I’m always looking for what caused an outlier price: false square footage, bulk sale, sale to a relative, cash investor getting a deal. Those can all throw a comp way off in either direction.

I’m aiming for a range of comps, not a single number. The range is what it is. I’m then going to use the big three and the digital introduction to push toward the top of that range.

Related

arv, range of comps, confirmation bias, oddbird, 70 percent rule, appraisal, scale of livability