5 Requirements of Comparables

Finding comparables is an important part of the valuation process for real estate. In order to properly evaluate any property, you will need to compare it to other properties in the area. This comparison provides you with an estimated value. I order for a property to be considered a 'comparable,' it must meet a few criteria. Here are some of the requirements of comparables when dealing with real estate.

1. Local Comparability

One of the criteria that have to be met is that the comparable properties have to be local. When you are doing a comparison, you need to be able to find properties that are within the same city. Ideally, they should be within a small radius within the city. You might look for properties that are all from the same subdivision or neighborhood. The closer that you can get to the subject property, the more accurate the comparison will be. The general rule of thumb is the property should be within a one mile radius of the property.

2. Conditions of Sale

The conditions of the sale also have to be comparable. You cannot compare a property that was sold with seller financing to one that was sold with a traditional mortgage. There are many different conditions that could be used when selling a piece of property. You have to make sure that you are dealing with apples to apples. This is important because seller financing, for example, can cost a little more than a traditional mortgage with a bank.

3. Recent

Another requirement of comparable properties is that they must be recent. If you are looking at a sale that took place one year ago, it will not give you much of an indication as to the true value of a property in today's market. The real estate market is always changing and is very dynamic. As a general rule, you should try to find properties that have sold within the last six months. This will give you a fairly good idea about what the market is like in today's terms.

4. Sold

When you are looking for comparables, you have to find properties that have actually sold. Some people try to look at recent real estate listings that are still for sale. When looking at a property that is for sale, you cannot compare the asking price to the value of a property. You actually need to find prices of properties that have sold. Otherwise, the comparison does not hold any weight. Properties that are listed for sale can be used to support the value of recent sales only.

5. Similar Property

You also need to try to find a property that is very similar to the subject property. You cannot compare commercial property to residential property. You cannot compare a high-end, luxury home to a condo. You need to find properties that share many of the same features if you want to have an accurate comparison. They need to be roughly the same size and should have the same bedroom and bath count. Also, the properties should be located within the same neighborhood boundaries.

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