Have you ever wondered just how sellers set list prices on their properties? The majority of them use the Multiple Listing Service (MLS) to aid in finding the perfect price point. Because ever-changing property values are relative to a local market, and thus difficult to determine, pulling MLS comps has become a respected method of setting list prices.
If you are a real estate investor, you should know how to run comps on the MLS. Knowing how to do so can help you set list prices backed with research and data, giving you the confidence and accuracy needed to sell a property.
What Are Real Estate Comps?
A real estate comp is a home similar to one you are trying to buy or sell and can be used to help determine the price or value of the property. Real estate comps (or comparables) can be pulled from data on the MLS, which is a database of properties that have been sold or are currently for sale in a given area. Licensed real estate agents can access this system to identify similar properties within a neighborhood to draw comparisons. When pulling MLS comps, agents typically search for listings that are similar in size, condition, features and age. These listings are ideally sold within the past six months and within a one-mile radius. In rural areas where distances from property to property tend to increase, a five mile radius is acceptable. The MLS also provides data points such as listing prices, sale prices, and number of days on market.
MLS comparables are used for a myriad of reasons, but perhaps the most prominent use (for sellers) is in determining a property’s listing price. By comparing the data of recently sold homes in a given market, sellers can identify which properties are the most similar to their own. Having access to current market data through the MLS allows a seller to determine a listing price that is fair, yet competitive.
[For a detailed discussion on how comparable home sales are used for buying investment properties, be sure to readthis article.]
Picking the correct price point is critical to a successful deal. And, because pricing properties is subjective by nature this advanced technique requires a considerable amount of effort. An ideal price should maximize a seller’s profits without turning off potential buyers. The latter can occur if homebuyers feel that the property is overpriced, based on their perception of home values in that neighborhood.
MLS comp sales also provide listing and selling dates, which indicate the number of days properties remain on the market. This means that an investor can estimate how long it will take to sell a property before striking up an investment deal. This information also allows them to factor holding costs into their deal analysis more accurately.
Additionally, comps are a valuable tool for devising a marketing strategy. By comparing similar properties that have sold within the past few months, sellers can identify which features make their listing unique from others. These points can be highlighted in photographs, marketing materials, and in person at open houses.
Who Uses Real Estate Comps & How
Almost everyone in the real estate industry can learn to use MLS comps to their advantage. There is a lot to learn from looking at similar properties, no matter which side of the transaction someone is on—that goes for buyers, sellers, agents and more. Here are just some of the ways real estate professionals rely on comparable housing data:
Sellers: MLS comps are a key component in the home selling process. Not only do they clue sellers in on how much to list a property for, but they also point to which features should be highlighted in the listing. Sellers should always pull comparable home data when prepping their property for the market, and especially when setting a price. Those working with or without an agent will find comparable home data to be invaluable to the home selling process.
Buyers: It is not uncommon for buyers to start pulling comps without even realizing it. Researching similar properties to compare prices, property values, amenities and more all technically count as looking at comparable properties. This part of the home buying process can help buyers ensure they are getting a fair price for the property they are buying, and can even help during the negotiation process. Buyers should research comps before ever making an offer, as they can help to avoid over paying for a given home.
Appraisers: Appraisers use comparable properties all the time when determining the value of a property. MLS comps provide a baseline of similar homes in the area, allowing appraisers to conduct their work more efficiently. In fact, checking the MLS is often one of the first steps when appraising a property. This process is crucial for both buyers and sellers, as it ensures homes are priced fairly for both parties.
Real Estate Agents: Comparable properties are a key component of a real estate agent’s day to day responsibilities. Agents rely on the MLS in order to provide the best services to buyers and sellers; they even use it to monitor local trends in the area. For example, MLS comps might reveal which features or home sizes are gaining popularity within a specific neighborhood. This can help agent’s set up listings to sell properties quickly, or even to frame buyer’s expectations when starting the search for a new home.
How To Run Comps On MLS
Knowing how to run comps on the MLS is undoubtedly a valuable skill for those who wish to run an accurate, up-to-date comparative market analysis. However, only licensed real estate agents and appraisers are authorized to access the MLS, making it tricky for other types of real estate professionals to run comps on their own.
Many real estate investors have found workarounds to this challenge, the main one being through symbiotic relationships with licensed agents. For example, an investor might rely on an agent to pull MLS comps on their behalf, in exchange for referrals to clients and listings. Other investors who understand the value of pulling comps, and would rather put in the elbow grease themselves, might opt to obtain their own real estate licenses. Click here for more information on whether or not obtaining a real estate license is beneficial to your investing business. Regardless, it is important for real estate investors to understand just how MLS comps are pulled. Having a credible method of conducting market research helps to justify one’s offers or listing prices on properties.
Below you will find an overview of how a real estate professional might run a comparative market analysis:
Size up the neighborhood: Location is a key variable used to determine property value, as neighborhood desirability and attractiveness tend to have a strong correlation with listing prices. Google Maps and Google Street View can be great tools to make note of the neighborhood’s aesthetic appeal and proximity to amenities.
Check estimates and forecasts: Use free tools such as Zillow and HouseCanary to determine the property’s estimated value and listing price, and obtain a forecast of how much values will increase or decrease in the coming years. Because so many homebuyers and sellers access free websites to check property prices and values, this information provides insight to the general public’s expectation of what property prices will look like in certain markets.
Assess the property listing: Next, create a list of the property’s qualities, such as location within the neighborhood, size, condition, number of rooms, and any distinctive features. This information will become useful in the next step: finding comparable properties.
Start pulling MLS comps: This is the step where you will need the help of a real estate agent. Upon logging into the MLS, the agent will look for properties that have been recently sold, or have sales pending, in the same neighborhood. They will then narrow down the search criteria to properties with features that are as close as possible to the list of features that were identified in the previous step. This can include square footage, number of bedrooms and baths, age, and lot size.
Calculate price per square foot: Once several MLS comps have been pulled, the average price per square foot can be calculated. This can be done by dividing the sale price by the square footage for each comp, and then finding the average between all comps. Click here for further instructions on how to calculate square footage for your property. After crunching these numbers, the average price per square foot can be multiplied with the total square footage of the property in question. The resulting number provides the approximate value for your listing, based on neighborhood comparisons. You can use this example to practice estimating your average price per square foot.
Appraise property condition: Once you have calculated the initial property value, be sure to take into consideration aspects such as any issues with the property, as well as any special features or upgrades that have been made that were difficult to compare.
Set your listing price: Now that the extensive research has been conducted, it is time to set your listing price for your property. This step should take several factors into consideration, such as the local market, property features and value estimate. In addition, the listing price should reflect how your property sizes up to the competition. At the end of the day, sellers should feel confident about their listing price if the decision is backed up by solid research using accurate data.
House Comps Template
It’s not a good idea to rely on your memory alone when searching for comparable properties. In fact, I would advise against anything less than a detailed spreadsheet. Whether you are estimating the value of a potential deal or trying to determine a listing price on an existing property, accuracy is crucial when looking at comps. Start a new spreadsheet using Google Sheets or Microsoft Excel. Place the property address you are using as a baseline in one column, with others to follow. Then organize your spreadsheet with the following rows:
MLS Number (If Applicable)
List Price & Date
Sale Price & Date
Number of Bedrooms
Number of Bathrooms
Other Property Characteristics & Amenities (Garage, Basement, Etc.)
The above information is a great starting point when analyzing comparable properties, and the side by side format will allow you to directly compare relevant information. You can add additional rows for property descriptions, tax values and more as you see fit. I recommend walking through an example yourself, and then saving the file as a template for future use. If you want a more visual example, try checking out the examples provided by SampleTemplates or The Balance.
Free Real Estate Comps
If you do not have access to the MLS, there are still a number of options for accessing comparable properties. In fact, many free public websites actually use data from the MLS and have a number of search features that are quite helpful when researching a given area. Consider the following websites next time you look for house comps:
Zillow: Zillow has great features for estimating property value and list price, but this website is also a good resource when searching for comps. Zillow allows investors to search for properties by price, bedroom, type and more making this a great tool for identifying similar homes.
Redfin: Redfin has a “Find a Home” feature with information on properties that were sold within the last 3 years. While recent listings are the most helpful when searching for comps, the added information can be helpful to investors who have trouble finding similar properties.
Trulia: Trulia can provide investors with detailed information on properties based on property type, purchase price, date sold and more. Investors can also navigate a map to find properties in nearby neighborhoods.
Property Shark: This is yet another tool with information on recently sold properties within an area. One of the best parts is that it does not require investors to input any contact information when searching for properties, making it easier than ever to do a quick search on a neighborhood.
Real estate prices are based on several factors, including: supply, demand, location, condition, as well as property features and amenities. Because these values can be relative and ever-changing, comparable properties on the MLS are a respected method for setting fair and competitive list prices. Comparable properties can even be used by buyers as they determine the correct offer price for a home. All in all, MLS comps are a valuable resource for real estate professionals no matter which side of a deal they are on.
Do you have any additional tips to share on how to find comps on the MLS? Share your thoughts in the comments below: