When it comes to buying or selling a home, one of the most important factors that determines its value is comparable sales. In the mortgage industry, “comparable sale” or “comp” is a term used to describe a property that is similar to the one being appraised and has recently sold.
Here’s what you need to know about comparable sales and how they impact the mortgage process:
What is a Comparable Sale?
A comparable sale, or “comp,” is a property that is similar in size, condition, and location to the property being appraised. Comparable sales are used by appraisers to determine the fair market value of a property. This is important because lenders use the appraised value of a property to determine how much they are willing to lend to a borrower.
For example, if you are buying a three-bedroom, two-bathroom house in a certain neighborhood, the appraiser will look for recently sold properties in the same neighborhood that are also three-bedroom, two-bathroom houses. If they find several properties that are similar in size, condition, and location, they will use the sales prices of those properties to help determine the fair market value of the house you are buying.
Why are Comparable Sales Important?
Comparable sales are important because they help appraisers determine the fair market value of a property. This is important because lenders use the appraised value of a property to determine how much they are willing to lend to a borrower. If the appraiser determines that the fair market value of a property is less than the purchase price, the lender may not be willing to lend the full amount needed to purchase the property. This can cause the deal to fall through or require the buyer to come up with additional funds to close the deal.
On the other hand, if the appraiser determines that the fair market value of a property is higher than the purchase price, the buyer may be able to negotiate a better deal with the seller. In this case, the lender may be willing to lend more than the purchase price, which can allow the buyer to have some funds left over for closing costs or other expenses.
How are Comparable Sales Determined?
Comparable sales are determined by looking at recently sold properties that are similar in size, condition, and location to the property being appraised. The appraiser will look at the sales prices of these properties and make adjustments based on any differences between the comparable properties and the subject property. For example, if one of the comparable properties has a pool and the subject property does not, the appraiser will adjust the sales price of the comparable property downward to account for the fact that the subject property does not have a pool.
In addition to looking at recently sold properties, appraisers may also look at properties that are currently on the market to get an idea of what similar properties are selling for. This is important because it can help them determine whether the recent sales prices of comparable properties are representative of the current market.
Comparable sales, or “comps,” are an important part of the mortgage process. They help appraisers determine the fair market value of a property, which is important because lenders use the appraised value of a property to determine how much they are willing to lend to a borrower. By understanding how comparable sales are determined and why they are important, you can be better prepared to navigate the mortgage process and make informed decisions about buying or selling a home.
Call Abo Capital today, we’ve been helping thousands of people just like you navigate the lending process for over 35 years. Call (310)984-8028 for immediate assistance.
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