“Comps” Why Is It Such A Dirty Word In Real Estate?
By The End Of This, You Will Understand How everyday people view “comps” and what it means to them If you’ve ever had any interest in either buying or selling a piece of property, you can bet that the word “comps” has either crossed your mind, or, have been something you automatically think to produce. But let’s take a moment and think about what “comps” are and more importantly, where “comps” came from in the eyes of the general public. Pt 1: “Comps” & “Commissions” The Dynamic Duo Introducing the public to reality real estate TV shows The public is deeply in love with the idea of real estate and the sheer number of real estate reality TV shows reinforces this. With the click of a TV remote, a tap of a phone screen, or a tap of a laptop mouse, anyone can become immediately immersed in the world of real estate reality TV, and this is no surprise to anyone since reality TV shows have been ragingly popular for the better part of 3 decades now, so it does make sense that real estate reality TV should see its success as well. The issues begin when the watchers of these scripted shows begin to believe what they see and hear from within them. In shows like these, the premise is generally the same: – Main Actor(s) are met with a challenging property / buyers / sellers– Main Actor(s) are faced with a difficult related decision they must solve– Main Actor(s) are attempting to uncover a selling / buying price– Main Actor(s) are “in trouble” but use “comps” while poorly defining them– Main Actor(s) miraculously discover a resolution, at the right time!– Main Actor(s) ride(s) off into the sunset with huge commissions Within that recipe of a reality show, the real estate element will almost always call for “Commissions” and “Comps”. These are the “bread and butter” of real estate reality TV. Rest assured, these “Commissions” and “Comps” are faker than a $3.00 bill. Commissions – Big numbers bring big ratings. Imagine if you were a real estate show where the commissions or agent income were the national average…no one would tune in to watch the show. So these numbers are artificially inflated and are scripted to grow viewership. These absurd “commissions” that get flashed on screen are outrageous and are there solely to “wow” an audience and the word “comps” is immediately recognizable as the major staple of the show, and therefore likely the driving factor for many reality show viewers. Source: National Association of Realtors / NAR.realtor Comps – Is a shortened way of saying “comparables.” This is another term that is recklessly tossed around in both reality TV and among everyday people. When attempting to forecast the present (or even future value) of a property, “comps” are the main source used to do so. The problem is that reality shows have bastardized this word, so much so, that anyone and everyone firmly believes that they are capable of “comp’ing” properties at their discretion. But what does it mean to “comp” a property in actual real estate terms? Veteran Licensed Real Estate Professional Charles Bianco produces comps in the form of a 15-20 page report that fully details the true value of a subject property. This report will include, for example, sold properties within the last 6 months that match the subject in terms of interior and exterior square footage, amenities, upgrades, condition, utilities, geographic location and range, schools, equal number of bedrooms and bathrooms, property type (according to building codes) and more. You’ll notice that what he does not cover “what the neighbor listed for” or “what the guy around the block is selling for”, these are not comparables and they are not valid. We feel bad for the most are licensed bank appraisers. They are the ones who are being “stepped on” whenever an ordinary homeowner (or unlicensed individual otherwise) feels that they can “comp” their property or a property of interest. Pt 2: So Then Who Does The Public Turn To? A hero had emerged, or so people had thought… There is an obvious need for information when it comes to real estate, especially since we’re focusing on what may be the largest transaction of many people’s lives…how could there be so few “reliable” resources and choices for people in this area? Since the internet came into existence, there has always been any number of websites touting themselves as the “go-to” website for real estate. Many have come and gone, but one has always stood out the most, Zillow. Zillow has proven itself to be the #1 real estate information website in the United States and with tremendous financial backing, their having gone public on the stock market, and thousands upon thousands of real estate agents who pay monthly to be a part of the website, it’s no wonder that Zillow has such a hold on the real estate consumer public. With that said, it’s also no wonder that the real estate consumer public holds their information as the gold standard, if only because whatever source would be considered second place, is a very, very, very distant second place by comparison. This does not mean that Zillow is without its flaws, however. In February of 2006, Zillow introduced the “Zestimate” to the public. Zillow defines its “Zestimate”in the following way: “…A Zestimate incorporates public, MLS and user-submitted data into Zillow’s proprietary formula, also taking into account home facts, location and market trends. It is not an appraisal and can’t be used in place of an appraisal.” Sounds great, until you realize that the Zestimate does not accurately value a home on actual comparable parameters, it only values properties based on information which is subject to error and its own internal algorhythms. As a result? Zillow admits that its “Zestimate” and the information they provide is subject to error, and those errors can be significant. Source: Zillow.com | Zestimate Accuracy Stats The above chart was taken