What are comparable market sales in real estate? They’re used by realtors to determine how much homes sell for in an area. The idea is that similar properties should sell at similar prices.
Why Do They Matter?
If you’re buying or selling a home, knowing what comparable market sales are can help you understand whether the price you’re paying is fair. It’s also helpful when you’re trying to figure out how much your house will sell for.
When Should I Use Them?
Comparable market sales are used by real estate agents to determine the value of homes in an area. They compare the sale prices of similar properties in the same neighbourhood to see how much houses sold for in the past. This helps them determine how much your property should sell for.
How Can I Find Out More About Them?
To find out more about comparable market sales, contact your local real estate agent as they keep track of every home sold in an area and make the data available to real estate agents.
What Are Comparable Market Sales?The recent selling prices of similar properties within the area, which are used to help determine an accurate valuation estimate of an investment property, with the assumption that your target property will sell at a similar price to other similar properties. This does not include active listings prices or pending sales, although you can also use these figures within your research, especially if you can take into account other data like average vendor discount.
Main factors to consider when using comparable sales in your research
ProximityThe closer the properties are to your target property, the better. Ideally, comparing a property on the same street or within a few streets is best (within 400m – 800m), but if there have been no sales within that radius, then compare with similar properties in the same suburb. Also, when you do compare the sales of similar properties, wherever possible, ensure they have similar frontage. You don’t want to compare a waterfront property with a property on a busy road for example.
Time of saleThe closer the time frame of the sale, the more confident you can be of the accuracy of your research. Ideally look for comparable sales data within the last six months or less, and if you can find examples of comparable sales less than three months ago, you will be following the examples of registered valuers and the financial institutions, who tend to use this time-frame for their own valuations.
SizeThis includes the size of the property and the land. Usually the price of land per square metre is lower the bigger the size of the lot. Therefore, comparing a 400m2 property with an 800m2 property and simply doubling the price is not a good idea. Wherever possible, compare a property within a 10% or less variance in size.
Age, build and condition of propertyComparing properties of different ages can be problematic. Comparing a 10 year old property with a 30 year old one makes an accurate comparison more difficult as the quality of build, materials used and standard of finish will all have a bearing on the valuation estimate. When you are doing your property investing research, always try to find examples built within five years of your target property,
Pace the market is moving atWhen the market is fairly stable, your research will be easier to carry out than if the market is moving and capital growth rates are rising or falling. In this case, having access to median growth rates of similar properties within the area can help you ascertain an accurate valuation estimate.
A process to follow when using comparable sales dataProperty investors will also have their own unique way of carrying out this research. However, this is a process you could consider as a starting point if you are new to property investing.
- Define your criteria for selecting comparable properties
- Assemble a list of comparable properties that meet your criteria.
- Carefully evaluate these properties and choose 5 – 7 that are most similar to your target property.
- Calculate the average value of these comparable properties, which will help decide upon a probable price range in which your target property sits.