Real estate prices are typically set based upon recent sale prices of comparable properties in the neighborhood. If market conditions are changing rapidly – up or down – those comparable values may not provide an accurate basis for estimating the value of our property in the immediate future. If we are preparing to sell our home, we may have to consider setting our price outside the range of recent sales. We call that breaking comps.
What if market conditions are improving rapidly and we want to set our asking price higher than comparable sales in our neighborhood? Sure, if our property is bigger, newer and has more bedrooms, bathrooms, or parking spaces in the garage than comparable properties, it’s easy to assign values to those differences and come up with a higher total value. But what happens when market conditions make that extra bedroom worth a $50,000 value adjustment today, when that same adjustment was $35,000 when a comparable property sold a month ago? If our property is the first one to go on the market with a higher value under these new conditions, we will be breaking comps. In other words, we will estimate a value based upon not just recent, comparable sales with reasonable adjustments, but also recent changes in market conditions and neighborhood influences that have not yet been reflected in completed sales.
Factors that could increase values ahead of comparable sales might include:
- Significant decreases in the cost of mortgage borrowing (lower fees or interest rates)
- Local employers expanding their workforce
- Decrease in inventory of homes for sale
- An announcement that the local public schools are now the best in the country
- Opening of a new expressway or rail line that cuts commute times in half
- Jennifer Aniston just purchased the house two doors down
Sellers could consider breaking comps simply by asking for a higher price – and getting it. But most buyers need the appraised value of the property to meet or exceed the purchase price. As conditions push prices up rapidly, appraisers are challenged to accurately estimate market values based both on recent sales and other influences, such as those I identified above. We can help appraisers arrive at our asking price if we provide accurate information for them to work with. The best way to do that is to include that information in the MLS listing, with regular updates as market conditions change.
Don’t be afraid to break comps. Even if Jennifer Aniston never actually shows up at her new house, someone has to drive up comparable sales prices in your neighborhood – might as well be you!
I hope you found this information helpful. If you have questions about breaking comps, real estate terms or buy/sell/investment strategies, drop me a line! Contact Us