How Do You Adjust Comps for Differences in Property Features?

Setting the price for a real estate investment property requires you to consider comparable properties. The sales comparison approach (SCA) allows real estate agents and investors to determine if a property price is fair and establish the possible return  on an investment. SCA uses similar properties that have been recently sold in a comparable area that have similar characteristics to determine property valuation.  

SCA  facilitates comparative market analysis (CMA), comparing prices of recently sold properties within the same geographical area with similar features. Appraisers will determine the value of a property by adjusting comparable properties for differences in features. 

Comparable sales, also known as ‘comps’, are recently sold properties with sinilar characteristics to the property in question. Features like amenities, age, condition, location, size, and style can all be considered. Comps will form the basis for estimating the value of the property through comparison and adjustment. 

Understanding how to adjust comparable properties for differences in features can ensure you make an accurate property valuation. 

Identifying Key Property Features

Common features can impact property value and enable investors and real estate agents to compare and determine accurate home valuations. It’s important that property descriptions are considered to ensure precision.. 

Detailed property descriptions make it easier to compare properties, especially where there is information on key property features, such as size, condition, and age. 

Five key features will impact property valuations:

Value of Comparable Properties

Home sales in the local area will determine a property’s listing price. Comparable property values will set a threshold for how much individuals will pay for a home. Real estate agents and investors should look for recently sold properties that match the property in question as closely as possible for the most accurate valuation.

Platforms like Realtor.com and Zillow can be used to search for nearby property listings and view recently sold properties. However, the list price may not always accurately reflect a property’s value, especially when a local market experiences a surge in demand. A local real estate agent will have the knowledge to advise on the current and long-term market trends.

Local Neighborhood

A neighborhood’s location can increase a property’s value, especially if it’s close to public transport, desirable schools, or major business centers and companies. A recent National Association of Realtors report stated that a desire to be closer to work, transportation links, and schools was the main reason for relocating or purchasing a new home. 

More desirable neighborhoods will enhance the value of a property, while less desirable areas can negatively impact a property’s valuation. Factors to consider include available parking, local crime rate, access to major highways, proximity to shopping, healthcare, and educational institutions. 

Property’s Age and Condition

Considering a property’s age and condition is crucial if you’re investing in a fixer upper. Age can reduce a property’s value. If a floor plan or main rooms appear dated, it may be advisable to renovate the property to improve its potential selling price. 

Similarly, older properties may lack the functionality that consumers expect. Older homes are often more expensive to insure with home insurance being a major consideration for consumers when purchasing a property. 

Property Size

A property’s size and its number of bedrooms and bathrooms will also determine its valuation. Every buyer is different, and some may value a larger backyard to be worth more than an additional bathroom. NAR data shows that a desire for larger outdoor spaces is the second most common reason for purchasing a new home. Using a per-square-foot valuation, considering outdoor areas can make it easier to adjust comps. 

State of Housing Market

The housing market operates on a cycle, alternating between being a ‘buyer’s market’ and a ‘seller’s market’. If housing supply is low, prices typically go up, especially if demand continues to outstretch supply. Mortgage rates also play a crucial role as they determine whether consumers can financially afford to transition from renting to homeownership. 

Economic factors will determine interest rates. For example, during the pandemic interest rates were cut by the Federal Reserve to make it cheaper to borrow money. These economic circumstances, combined with limited availability, created a seller’s market, driving up home valuations. Four years later, the housing market is cooling off with the Federal Reserve expected to bump up interest rates. However, prices may continue to remain high as inventory is still low.

Collecting Comparable Properties

Determining a property’s valuation starts by finding and selecting comparable properties. Real estate agents have the tools and resources to determine a property’s valuation. Comparatively, real estate investors can use tools like public records and an MLS to determine a property’s value by gathering comparable properties.

When selecting comps, it’s important to look for listings that are as similar to your property as possible. The age, condition, size, and location should be as comparable as possible. Other features and characteristics should also be considered, including the number of bedrooms and bathrooms, and additional features, such as a pool or large outdoor space. Upgrades, such as cooling systems, can add value to the property. Comparing properties with as many similar characteristics as possible can provide a more accurate estimate for a property valuation. 

It’s recommended to collect as many comparable properties as possible for an accurate estimate. Start your search for comparable properties by looking at recent nearby property sales and current listings. Websites like Realtor.com and Zillow offer an extensive database of listings, enabling you to search by zip code and property type. 

Real estate agents will also have access to additional information for sold properties and can help identify comparable properties. Local records can also provide information for similar properties. 

Adjustment Factors

It’s important to consider property uniqueness when adjusting comps as it’s rare to find completely like-for-like properties. Unique features may not be directly comparable, making the adjustment process more difficult, and increasing the risk of an inaccurate valuation. 

Adjustments are additions or subtractions made to the sales price of a selected property, reflecting how it’s different from the property you’re determining a valuation for. For example, if the comp does not have a garage but the subject property does, you would add the average value of a garage to the sale price of the comp property to find an accurate estimate.

There are four adjustment factors to consider:

Adjusting for Size Differences (Square Footage)

When you’ve gathered your comps, take the sale price, and divide it by the square footage. This result will provide you with a cost-per-square-foot calculation that you can transfer to your subject property. For the best result, find the average cost per square foot for multiple properties for an accurate estimate. 

Adjusting for Location Variations

Real estate is all about location. It’s a feature that’s been proven to determine how much buyers are willing to pay for a property. The more desirable the area, the higher the price tag. Geography will impact a property’s value, so it’s important to choose comps within the local neighborhood or surrounding area where possible. Factors like pollution levels, highways, transport links, schools, job opportunities, and public parks will determine whether an area is desirable for homeownership. 

Adjusting for Property Condition and Age

Comps should ideally be the same age and condition as the subject property. A property’s condition will influence its valuation. If a property needs extensive repair, comparing the valuation with recently renovated properties can help investors determine whether they want to improve the property before putting it on the market. Read our guide on after-repair value (ARV) for other calculations. 

Adjusting for Additional Features

Extra features can make a property more desirable or may have contributed to a higher sales price for a comp. The number of bedrooms and upgrades to main areas like kitchens and entertainment rooms can improve the valuation of a property. Additional features like a pool, basement, or garage can be assigned a cash value to be added or subtracted from the comparison property for an accurate estimate.

Calculating Adjustments

Once you’ve identified and selected your comparison properties, different methods can be used to calculate adjustments. A professional appraiser, real estate agent, or investor can use methods like statistical analysis, trend analysis, cost analysis, and paired data analysis to determine a valuation estimate. These adjustments can be made in percentages or dollar amounts between the property subject and comparable.

For example, vacant land uses a bulk basis as a comparison unit. Bulk basis requires a one-to-one comparison between the properties’ attributes, instead of using a specific unit of comparison, such as setting a dollar price per square meter. 

Most real estate investors will use a dollar value calculation as the most straightforward way to compare comps. If the other property has a pool, they can assign it a cash value and deduct it from the sales price if the subject property does not have one to make the comparison more accurate.

It’s important to determine how much value each difference adds or subtracts from the comp’s value. Appraisers can decide to use a percentage or dollar amount for valuation. 

For example, if a comp has a garage and the subject property doesn’t have one, an appraiser may subtract 10% of the value to account for this feature difference. Real estate agents and investors should seek reliable data sources to determine such valuations, such as working with local experts and researching market surveys and appraisal reports. 

Using Adjustment Tools

Adjustment tools can make it easier to determine the valuation of a property. At Privy, we offer a range of adjustment tools with 97% of US residential property coverage with over 171 million fix and flips to compare. Instead of using different software and platforms, burying yourself in spreadsheets, Privy integrates all the tools you need into one platform. 

You’ll get access to off-market and public record data with detailed comparables, including before and after photos, construction specifications, lending data, and after-repair value. 

What makes Privy unique is that our adjustment tools can be used to find, analyze, and compare single-family rentals and other property types to scale your portfolio. Our unique patent-pending comping technology shows you similar deals, active and ready to be closed, delivering all nearby comparable properties in just a few clicks. You’ll get all the information you need from one reliable source to determine an accurate estimate as efficiently as possible. 

Finalizing the Adjusted Value

The final step is to combine the different adjustments to determine the property value. It’s important to review and validate the adjusted value by assigning a cash or percentage valuation to the adjustments. A third party, such as a real estate agent or local expert, can help validate your valuation by assessing your individual adjustments. 

Determining an average across all the comparable properties is the easiest way to summarize a range of values. However, comparable properties with the most similar features should be given priority and additional weight in these calculations. If a comparable property is considerably older, it could be excluded from the average to provide a more accurate estimate.

Compare the final estimate with other information sources, such as market trends. A valuation estimate concluded from comps may have limitations. They’re not an exact science and individual market factors can positively or negatively impact a property’s value. Experience and judgment will also play a role in determining the final valuation.