In a recent offer situation, the buyer’s agent argued that I had overpriced my sellers’ property by $300,000. You can imagine my initial shock.
After looking into the reason for the argument, I was reminded of one simple and powerful fact that all real estate agents must be aware of in this day and age: We can make the internet back up whatever “facts” we want.
This particular agent had pulled “comps” to justify the extremely low offer and pleaded his clients case rather impressively. But numbers don’t lie.
When you are looking at comparable property to make your offer or arrive at a listing price, there are three numbers that are important pieces of the puzzle.
Heated square footage
It should be very obvious, even to a new agent, that a comparison of two properties should start with the square footage. The two properties that are being compared must be in the same heated square footage range.
I say “heated” because outdoor storage and living space will factor into the overall square footage. Of course, that should also be a factor, but it is far more important to compare year-round living space in my opinion.
The space that is finished and ready to use is the standard for a solid comp.
Given the last 15 years in the real estate economy, the date in which the subject property and the comparison properties were purchased is of great importance. As markets vary, the purchase price may or may not be a factor in the current market situation.
For example, a condo purchased in 2006 for $200,000, might only hold a market value of $125,000 today. If the current owner and agent are listing the property at $175,000 to try to avoid writing a check at the closing table, that should be a concern for a potential buyer.
Likewise, if the property was purchased in foreclosure in 2009, the purchase price will likely be much lower than the current market value of that property. In this case, the price at which the seller purchased does not warrant a lower offer “just because they can afford it.”
When using sale price to justify a listing price or offer, the date the comps were sold is relevant to deciding if they can be used as an accurate argument for price.
Let’s be honest, if you are going back more than a year to justify your number, you are, probably, off base.
Number of bedrooms
This seems so simple, but it’s so often missed or misjudged.
There is a legal description of what constitutes a bedroom when the property goes into MLS, and that definition varies from market to market. In fact, there is much debate about what constitutes a bedroom.
Regardless of how the property is listed, I use simple requirements to compare the number of bedrooms between properties.
For comparison, a bedroom must have a door, a window, a ceiling height that is congruent with the rest of the property and a closet. The first three are found in many legal descriptions. However, a closet is not a legal requirement for a bedroom.
The point in creating these standards is to compare the number of rooms with similar features. This helps bypass listing agents with creative perspectives on the number of bedrooms a property contains.
A room that is clearly a home office can be listed as a bedroom legally, but may not be considered a bedroom by a buyer. There may not be a bathroom on the same floor; it may lack any storage for clothes, or it might not be a proper size for a suitable bed. While, legally, a bedroom, is it useful in relationship to the other comps?
Two other factors that are not associated with numbers in your comparison of properties are location and condition. Comps should all be in a similar location and in similar condition to be relevant.
In our age of having too much information at our disposal that is subject to opinion, agents have to rely on like information that is based on fact when running comps for their clients. Your opinion will not change the truth.
There is no arguing the amount of heated square feet, the sale dates we use in regards to relevance and the number of rooms considered by most of the breathing public to be bedrooms. When you add location and condition into the mix, it creates a consistent measure for comps.