How Should You Compare Your Home To Recent Neighborhood Sales?
Are you curious about the market value of your home? Have you seen nearby homes sell and wondered how your home might compare to recent neighborhood sales?
If so then this post is for you. It’s human nature to believe that your home is the best one in the neighborhood but how does it truly compare with recent sales?
Rather than looking at the recent sale(s) and saying “my home is better than that one so it should be worth more” it might be worth digging a little deeper. This is basically what real estate appraisers do.
While you don’t have to have the extensive training that an appraiser does to get a rough idea of what price range your home might fall into you can still learn from the concepts appraisers use.
You can do a comparative analysis of the major features that affect value and see how your home stacks up against the sales. Today we’ll look at things to consider when comparing your home to recent sales and hopefully it will help provide a little more context into how much your home may be worth.
While my main audience for this post is homeowners, real estate agents can also use this method to see how a home they are listing might compare to the recent sales. Notice I didn’t say recent comps because just because they are in the same neighborhood and sold recently does not necessarily make them a comp.
It’s important to remember this because a comp is considered to be a similar but different alternative for a potential buyer. If a recent sale is twice as big and a lot better quality it may not be a comp for your particular home because a buyer for your home may not consider this recent sale due to its size and most likely higher price.
You can check out all of the traits that make a sale a comp from a previous post I wrote.
So let’s go ahead a get started looking at how your home might compare to the recent sales.
6 Ways to Compare Your Home
1) Square Footage – One of the most common methods of comparison in real estate is square footage. All square footage is not the same and you must know what all of the individual square footage calculations are in order to have a meaningful way to compare properties.
You must know how much of the square footage is above grade (not basement), below grade (basement), enclosed porches, and other areas that may be finished. What I see a lot of people do is lump the square footage of the basement with the main level, or gross living area, of the home.
All of the areas of a home, including finished and unfinished, do contribute to value, however, not at the same rate. It is important to know the difference so that you are comparing apples to apples.
It is also important to know whether a recent sale has finished or unfinished square footage in the basement. This is important because if your home does not have a finished basement but the recent sale does then you must take this into consideration, especially when calculating the price per square foot.
When you calculate the price per square foot of the home with a basement the figure you arrive at includes everything about the property. If you then take the price per square foot of the sale and apply it to your square footage it will overvalue your home because your home does not have a finished basement area.
You must keep this in mind and know that your price per square foot will most likely be less. Price per square foot only works for certain homes and I do not believe it is a reliable indicator of value by itself. You can read a previous post I wrote to find out more about the price per square foot.
2) Condition – The condition of a home is another key factor to consider when looking at recent sales. We all know that homes that have not been well cared for and that need repairs sell for less than homes that have been well maintained.
This is why real estate agents will tell you to at least make some cosmetic repairs that will improve the street appeal of a home. Buyers will take this into consideration when they make an offer on a house and they will factor in the cost to fix these items, which can make their offer lower.
Because of this, it is important to know what type of condition a recent sale may have been in when it sold. This will help you make an effective comparison to your home.
If your home needs more repairs than the recent sales then it would be reasonable to assume that your home may be worth less due to the needed repairs. Of course, the opposite is also true and if your home is in better shape then it would most likely be worth more.
Of course, if you want to sell your home you will know exactly what you need to repair in order to get a similar price as the sale.
3) Updates – Another important thing to consider is what type of major updates a home may have had. Extensive renovations to the home, especially to the kitchen and bathrooms, has a huge impact on the sale price.
If the sale has been remodeled and your home has not then it would be unreasonable to assume that your home may sell for the same price as it did. While this may seem to be obvious to most people I have been asked why I did not use certain sales as comps in my appraisal and it was because the property I was appraising did not have similar updating.
Technically speaking it would be possible to use this sale as a comp but you would have to make an adjustment for the updating. It is easier and more accurate to find sales that are in similar condition.
So, if a recent sale has more extensive updating than your home it would be better to dig a little deeper and find another recent sale that is more similar in condition to yours. You should at least realize that your home will most likely be worth considerably less than the updated home.
4) Features – The features that a home has is also something that must be taken into consideration when looking at what a home has sold for. Knowing how your home’s features compare to the recent sale is also important.
Some of the major features that a home has include inground swimming pools, finished basement area, finished she sheds or man caves, finished areas over detached garages, barns, storage buildings, outdoor living areas/kitchens, and extensive hardscapes, among others.
While this post is not written to explain how to determine the value of these features my intent is to remind you to be aware of and consider that the sales may have these features and know that your home may be worth more or less than the sale because of potential differences.
5) Bedroom/Bath Count – A big selling point of a home is the number of bedrooms and bathrooms that it has. A home with more bedrooms and bathrooms is more marketable and is easier to sell.
One problem I have found regarding this matter is that some may not be aware of the correct definition of a bedroom. I wrote about this previously and you can read more about it here.
As with everything else I have discussed here, it is important to make sure you are comparing apples to apples. You will want to make sure that you do not miscount bedrooms and you will want to make sure that if you have bedrooms in the basement you are making a similar comparison to the recent sales you have found.
One last point to consider is whether your home has a septic tank. The county in which you live takes into account the number of bedrooms you have when they issue what size of a tank you need.
You may only be able to advertise your home with a certain number of bedrooms based on the septic tank size. This is just something to consider.
6) Land Size – The size of the lot a house is on can also affect what it sells for. You will need to consider how your home compares to the neighborhood sale.
Not only does the size of the lot matter but how the home is situated on it. This is such an important issue that I covered the differences between surplus land and excess land in depth in a recent post that you can check out.
The bottom line is you will want to determine whether the recent home sold for more or less based on the size of the lot and its orientation on the lot. How does your home compare to the sale?
Conclusion
I hope this discussion has given you some food for thought. It’s important to realize that there are a lot of things to consider when you look at recent sales in your neighborhood.
Most people only look at price per square foot, however, as you can see from our discussion there are many other factors that affect the market value of a home. If you have any other questions about this topic please leave a comment below or contact me and as always thanks for reading.
There are many things to consider here. I find it’s easy sometimes to want to simply use one price per sq ft figure to value a home, but we have to consider lots of factors.
Very true, Ryan. The price per square foot includes a lot of stuff so it’s not always the best indicator when there are numerous differences between the subject and sales.