The more you know about pulling your own comps the less you will be surprised when you hear back from an appraiser. Appraisals can make or break a deal for investors. Whether it’s a subject-to appraisal (appraisal subject-to written repairs being completed) that determines how much your hard money loan will be or an appraisal that determines your potential home owners’ loan amount. Your best defense against a botched appraisal is to learn how to pull solid comps yourself. Pulling comps is much more an art than a science. If you are planning on protesting your taxes, buy fix and flip or planning to buy fix and sell; pulling your own comps is a skill that every successful real estate investor needs to master.
Let me start off by saying that I am not an appraiser. However, I am a real estate broker and investor. I have had my real estate license for ten years and have been a part of countless real estate transactions. I was the agent on about 50 closed transactions last year alone. The only way I can continue to do this type of volume is by being a good judge on after repaired value so my investors stay happy and I am able to guarantee repeat business. I’m sure there are many ways to pull comps and determine value but the following are just some tips to show how I do it.
Note: if you do not have access to MLS, go to www.investorblock.com and sign up to pull comps for free in Dallas, Fort Worth, San Antonio and Houston. Some of the same principles will apply so feel free to keep reading.
Here are 3 rules that you should always start off with;
11. Comps that are in the same subdivision are always going to weigh more than comps outside the subdivision.
22. It’s always best to stay within 5 years +/- year built when searching for comps.
33. Appraisers only pull comps for the sale of a house from 6 months back. For rental comps, you can go about a year or two back.
Step 1: Go to your local MLS provider, sign in, and find the property type that you would like to look for. I.e. Single Family, Commercial, Rental etc…
Step 3: A map will appear and on the top menu of the map will be the label for “Locator”. Click that and then type the address of your subject property and press Enter.
Step 4: Zoom out a bit so you can get a good view of the area and then select “Draw Polygon” at the bottom of the map. Draw a polygon around the area around your subject property remembering not to cross any major streets and staying within what would appear to be the same subdivision. Once finished select, “Apply to search”. Doing this should remove the map from your screen and take you back to your home page.
This is where the process starts to develop into an art.
Step 5: Add in Square footage and year built into the main search remembering to start off with 5 years +/- and 10% Sq footage +/-. You can always widen the search later on but this is a great starting point. Once this is done, select “Search”.
Step 6: If you have a manageable number of Sold comps pulled skip to step 7. If you have either a large or under 3 properties that have not been rehabbed pulled up, re evaluate the search criteria you have entered. It’s better to go down in square footage and year built. If you go up in square footage and year built you will need to do adjustments. If you have too many comps, you might want to add the subdivision to the search criteria. It will help further narrow your search.
Stage 7: Once you have a manageable number of comps, start to go through them one by one and look at the pictures of each one. This is where newer investors have a tough time. if the house looks like the subject house will once the repair is 100% complete, put a check mark by it and use it as a comp. If it’s a foreclosure, short sale, motivated seller, a house that needs work or is “well maintained” then it is not a true comp. You need to determine the ARV (After Repaired Value) by houses that have already been fully repaired.
Hopefully that helped a little. All you need is a little practice and you will be able to do this entire process in no more 5min per house. As always, if you need any help or assistance, don’t hesitate to call me. If I’m a strong enough resource to you now, when it’s time for you to buy your next Texas investment property you know who to call.