How to run comps

After you’ve been spending weeks and months prospecting for opportunities, a home owner finally agrees to sell you their home. What now? How do you know how much to pay for it? What is it worth? How much will another person pay for it after it’s fixed up. A lot of the formulas involve a term called ARV or ‘after repair value’. Calculating the ARV is one of the most important parts of the process and can either make you very wealthy or will have you taking a huge loss. This is how I evaluate the ARV of properties in the Bay Area.

Get access to the MLS. I have a license and have my own account, but if you don’t, find someone who’s either willing to share their account info, or ask them to do you a favor.

Pro.mlslistings.com

Click on Matrix Search

Next you want to fill out all of the boxes. We want to see what’s “Active”, or currently listed, “Contingent” and “Pending”, on what’s under contract/escrow, and most importantly, “Closed” or what has actually sold and transferred. The COE date is the date that the property closed on. In the Bay Area, property values change dramatically within a few months, so we set our range for only the past 3 months (90 days). That’s why you put in 0-90, it means it filters values for homes that closed from today to 90 days ago. I also filter my results based on property type. There’s no need to compare a Single Family Home with a Condo, they are priced differently. Finally, you want to change the search radius from your subject property (in this case 589 Borregas Ave, in Sunnyvale) to only .25 miles. As it was mentioned in a podcast, home prices vary based on street and location. A home across the street can have a massively different price tag because it belongs to a better school district. When you’re done filling out the boxes, you can either click the Map button to see the comps in a graphical form, or click Results to see it in a list form.

Map View

Results View

As you can see, the property values in this area range from $1.1M to $1.45M. The $1.65M home doesn’t count as a true comp since it hasn’t sold yet, but it’s a good indicator of what the market will accept.

By going through the photos and the listings, we can get a feel for what the property’s condition is and why it sold for a certain price. If I were to purchase a property in this area, I would take a look and see if my property conformed well with the neighborhood (3 bed, 2 bath, 1300+ sqft). If the subject property meets these qualifications, I could conservatively say that the ARV is $1.4M. I’ll take that $1.4M and use it for my calculations to determine what my MAO or “maximum allowed offer” can be.

Conclusion

Performing comps is the single most important part of purchase a home. If you mess up this number, you with either offer too much for the home, which will make you lose money, or you will offer too little, which may mean you don’t get the deal at all. Having a strong understanding of what the property is worth will make you confident in making your offer. There are some things that I skipped over that you ABSOLUTELY need to watch out for. You have to see who your buyers are and if that group of people have some cultural rules. For example, some of it has to do with Feng Shui, something that I’m not familiar with. If the home is on a busy street, reduce the ARV by $100,000 from the comps. If the property has no garage and other comps in the area do, reduce it by another $100,000 – $150,000. Same thing goes if the property is at a T- Junction. You also need to verify that the property is in the same school district as your comps. If it’s in a worse school district, the property will not sell for as much. You can check what school district the home belongs by going to www.schoolandhousing.com

Perform your comps, walk the homes during their open houses, and become an expert in your area. This is how you’ll thrive as a home rehabber. Good luck!