Comparable Properties
Introduction
By far the biggest piece of evidence that helps to determine the value of any property are comparable properties. Here I discuss the extent to which they can be used to value and price our home.
The two types of comparable properties
There are two types of comparable properties: sold comparables and available comparables.
Both are equally important as each other and both should be looked at together in order to get the best picture in respect to the value/price of a property of a particular type - otherwise, to only consider one type of comparable without the other is to only get half of the picture and therefore a less accurate valuation or pricing.
Let’s explore each of type of comparable in more detail.
Sold comparables
Simply put, a sold comparable is real evidence of an achievable price.
For example, if a property comparable to our home was sold within the last two years for £1,000,000, then we can assume (on the surface) that our home can also achieve around £1,000,000 as well.
But just to be clear, although a sold comparable is indeed real evidence, it is relative evidence, but not absolute evidence.
What is meant by a sold comparable being relative evidence, but not absolute evidence?
A sold comparable is not absolute evidence that our home can achieve around the same price at any given time. So if a comparable property was sold within the last two years, or even within the last 12 months, for £1,000,000, this is not an absolute indication that our home can also achieve around £1,000,000 at any given time.
Rather, a sold comparable is relative evidence, in that it demonstrates a property comparable to our home was able to achieve £1,000,000 at the time in which it was sold, but that doesn’t indicate whether it can achieve around the same price at any other time, particularly in today’s market. In other words, a property comparable to our home is worth £1,000,000 relative to the time and market variables in which it was sold.
For this reason, one can make the point that sold comparables aren’t solely reliable and require looking at them together with other evidence, i.e. available comparables, to give us the best picture in respect to the value/price of our home.
Market conditions and variables and the relative evidence of sold comparables
Market conditions and the relative evidence of sold comparables
Property values rise and fall depending on the market conditions, which can impact the relative evidence of sold comparables, and therefore their reliability as indicators of how much our home could be worth.
For example, if a property comparable to our home was sold for £1,000,000 within the last 12-24 months during a rising market, then £1,000,000 for our home may be considered to be overpriced in today’s market, particularly if the market has since corrected.
Conversely, if a property comparable to our home was sold for £1,000,000 within the last 12-24 months during a falling market, then £1,000,000 for our home may be considered to be underpriced in today’s market, particularly if the market has since risen.
Market variables and the relative evidence of sold comparables
The property market moves fast and is ever-changing. The dynamics of the market change as the variables change. In this context, the supply and choice of properties on the market, as well as the demand for them, is dynamic, not static; and so the prices of properties change in accordance to the supply, choice and demand.
There will always be a constant flow of new and fresh properties coming onto the market, whilst older properties on the market are sold or withdrawn; so the choice of available properties on the market, along with the competition that comes with it, will constantly change. Such changes are always going to impact property prices. In essence, market variables are always changing over time.
How do market variables impact sold comparables?
A sold comparable represents the best choice, more specifically, the best choice over the competition within its area and/or market at the time in which it was sold.
A sold comparable is a property that the buyer had picked, believing it to be the best choice over other properties that were available to them on the market at that particular point in time.
However, this does not absolutely indicate that this very property would have still been the best choice for that buyer had they decided to buy at a different point in time.
To better understand this, let’s assume the following scenarios:
Let’s assume the first scenario where a property comparable to our home (Property A) was priced at £1,000,000 and purchased by the buyer 12 months ago, believing it to be the best choice on the market for them at that particular point in time.
Now, let’s assume an alternate scenario where that very same buyer had instead entered into the market for the first time at a different point in time, say, today.
In this alternate scenario, there is no absolute certainty that the buyer would pick the very same property (Property A) that they picked in the first scenario, given that the market variables, i.e. the choice of available properties, the competition, and the property prices would not necessarily be the same as the first scenario. Although Property A represents the best choice for the buyer in the first scenario, it may not necessarily represent the best choice for them in the alternate scenario, given that the market variables aren’t necessarily going to be the same.
In fact, let’s assume in this alternate scenario that the buyer picks Property B over Property A. Property B is in fact a better property that’s available in today’s market, also priced at £1,000,000 and is a better fit for the buyer’s needs.
Property B therefore represents the best choice for the buyer in today’s market. One can even assume that, had Property B been on the market in the first scenario, the buyer would have picked it over Property A. Property A represents the best choice 12 months ago because there wasn’t better competition like Property B to compete against at the time.
The point here is that Property A shows that a property comparable to our home can achieve £1,000,000 12 months ago, as it represented the best choice on the market at the time. But the very same property doesn’t necessarily represent the best choice on the market at any other time, as market variables and dynamics constantly change. Therefore, a sold comparable does not absolutely indicate that the same price is definitely achievable in today’s market, or any other time in the market for that matter. If Property A is comparable to our home, it is not absolute evidence to show that our home will achieve the same price in today’s market, or any other time in the market.
The recency and relative evidence of sold comparables
Of course, the more recent the sold comparable is, the more reliable it is; and the older it is, the less reliable it is.
For example, a sold comparable from within the last 3 months generally tends to be more reliable than one from within the last 12 months, as today’s market variables and dynamics would more closely resemble the market variables and dynamics of 3 months ago than 12 months ago.
So if we assume another scenario following on from the previous scenarios above, where we now have two other properties comparable to our home: Property C having been sold 12 months ago for £1,000,000, and Property D having been sold 3 months ago for £950,000. Property D would be a more reliable comparable, as it was sold during a market that closest resemble today’s market. And so, the value and pricing of our home should be closer to £950,000, especially if another property comparable to our home (Property E), remains available (and therefore unsold) on the market for £1,000,000.
COMPARABLES TIMELINE
Drawing the distinction between relative evidence and absolute evidence
It is important to draw the distinction between relative evidence and absolute evidence in respect to sold comparables.
Why is this?
Some treat sold comparables as absolute evidence, adopting an almost ‘like-for-like’ approach to the valuation and pricing of their property. In fact, many of the properties that are stagnant on the market can be partially attributed to such a ‘like-for-like’ approach, in that those assuming that if a comparable property had achieved a certain price in the past, then their property would also achieve around the same price, without sufficiently recognising that the market variables and dynamics aren’t necessarily the same as before.
As an example, if a comparable property was sold within the last two years for £1,000,000, some may take the ‘like-for-like’ approach and simply price their property for £1,000,000 as well. It may be the case that two years ago, £1,000,000 was a fair market price; but in today’s market, £1,000,000 may be overpriced - this is especially true in the case of a falling market!
For your reference, I've put together a PDF document of a standard property search on Rightmove showing the search results, by way of an example. The search results include the price history for each listing where available. From the document, you will notice examples of properties that have become stagnant and grown stale on the market, with many having had a price reduction or successive price reductions! Some of those properties that remain on the market can be partially attributed to the ‘like-for-like’ approach to valuation and pricing I’ve described. Click here to open the PDF document.
If we understand and appreciate sold comparables to be relative evidence, then we will know to treat it as a starting point, in which we need to consider other evidence, such as available comparables, alongside it.
One does acknowledge that in a rising market or when market variables and dynamics are currently more favourable than, say two years ago when a comparable property was sold; our home may be able to achieve a higher price than the price in which the comparable property was sold for.
Understanding and appreciating the distinction between relative and absolute evidence helps us to appropriately value our home and price it accordingly to achieve the best price!
Assessing the merits of sold comparables
Sold comparables should not simply be considered at face value. Not all sold comparables are made equal and so they deserve to be looked into deeper to assess their merits.
Here are the factors that I would consider of sold comparables:
Factor A - Property
The only comparables that are worth looking at are the ones that are of close or similar property type (e.g. detached, semi-detached or terraced etc), price range, size, number of bedrooms and bathrooms, and presentation etc.
Factor B - Location
We should consider the location of our home relative to the comparables. Generally speaking, a property referred to as being in a more desirable location usually means that compared to its comparables, it is:
Located in or closer to a quiet, peaceful, well-maintained and safe area, and/or a strong community; or a prime or in demand area.
Closer to local amenities, schools, transportation links, and/or a city centre or hub etc.
Generally speaking, if our home is in or closer to a desirable location compared to the comparables, then it will be more valuable than those comparables. Conversely, if our home is further away from a desirable location compared to the comparables, then it will be less valuable than those comparables.
Factor C - Market and History
How long have the comparables been on the market before they were sold?
Were the comparables sold at the initial asking price, or at a reduced price?
If the comparables had a price reduction, were they reduced once or had successive reductions before they were sold?
And how much were they reduced each time?
The price and market activity history of sold comparables presents to us a story of what has and hasn’t worked historically. Most importantly, it tells us how the market in our area reacts to particular activities and/or changes, especially to pricing.
For example, if a number of sold comparables in our area had to reduce their prices after a period of stagnation on the market before they were eventually sold, this is an obvious tell that we ought to be careful with our own pricing, otherwise we can expect to make the same mistakes if we are to follow the same marketing path!
The general rule of thumb is that, the shorter the timeframe between the point in which the comparable property came onto the market to the point in which it was sold, the more valuable it is perceived to be. Conversely, the longer the timeframe, the less valuable it is perceived to be.
Also, a comparable property that was sold for its initial asking price is generally perceived as more valuable than a comparable property that was sold only after a price reduction, but especially after successive price reductions!
By observing the history, we can follow what has worked, but more importantly, learn from others’ mistakes to help us to position our home on the market more appropriately, or specifically, more saleable.
Sold comparables are only one piece of the puzzle
Sold comparables are extremely useful evidence that greatly helps us to determine the value and asking price of our home - but is still only one piece (albeit a major piece) of the puzzle!
Sold comparables should not be relied upon solely nor looked at in isolation as an absolute indication of the value of our home - but rather, sold comparables should be looked at together with other evidence, particularly available comparables (another major piece), in order to get the best picture of our home’s value and asking price!
Available comparables
Before going any further, I should make it clear that when referring to ‘available comparables', I am referring to comparable properties that have been on the market for more than 3 months.
Available comparables are the competition
Properties that are available on the market are choices that are available to the buyers. Each and every one of those properties are competing against one another for the buyers’ attention and interest.
From the buyers’ perspective, if our home is a property that is of interest to them, available comparables are other choices on the market that could be close alternatives for them. These are properties we can reasonably assume that the buyers will consider and compare alongside our home. Each available comparable is a potential alternative choice that the buyers could decide upon over our home!
Essentially, available comparables are the competition!
Available comparables are unsold properties
It is important to be aware that available in context also means unsold - meaning that available comparables are properties that are on the market because they remain unsold, or more specifically, remain on the market unsold at the asking prices that they’re listed for. Essentially, these properties have failed to sell at their asking prices, giving off strong indications that those asking prices do not accurately reflect their true market value. In other words, there is an apparent discrepancy between the price and the actual value that these properties bring to the table.
Simply put, just as sold comparables are real evidence of an achievable price; available comparables are real evidence of an unachievable price!
To better understand this, let’s assume that there are two properties comparable to our home: Property A was sold within the last two years for £1,000,000, and Property B is currently available on the market for £1,000,000.
Based on this, can we assume that our home is also worth £1,000,000?
No, we certainly cannot assume this.
First off, I discussed earlier that sold comparables are relative evidence, not absolute evidence. Although Property A is shown to have achieved £1,000,000, this evidence is relative to the market (particularly the market conditions and variables) of two years ago, but is not an absolute indication that it can achieve the same price in today’s market (or any other time in the market for that matter).
In fact, Property B that is currently still available on the market for £1,000,000, is a clearer indication that a property comparable to Property A, as well as our home, is unable to achieve the same price in today’s market! Property B as an available comparable is therefore an unsold property!
As mentioned earlier, the property market moves fast and is ever-changing. The conditions, variables and dynamics of today’s market aren't necessarily the same as before when Property A was sold.
Should we try to price our home the same as an available comparable?
The simple answer is that I would advise against this.
To better understand the reasoning, let’s assume another scenario following on from the previous scenario above.
Property B remaining available on the market for £1,000,000 is a clear indication that a property comparable to our home is unable to achieve this price in the current market. As mentioned, Property B as an available comparable is therefore an unsold property.
If our home is on the market for the same price (i.e. £1,000,000) as Property B; assuming that our home is very similar to and no better than Property B, then there is no reason why any buyer would be any more interested in our home than Property B, since our home would simply be offering the same thing.
If Property B has failed to sell at its asking price and remains unsold; then our home, a property that is offering the same thing for the same price, is bound to follow suit. We can expect for our home to end up with the same result as Property B, as our asking price would equally not reflect the true market value!
Simply put, our home would not be any more saleable than a property (Property B) that has failed to sell!
Given that available comparables are in fact unsold properties, I would suggest that we treat them as examples of what not to do in respect to valuation and pricing, and learn from their mistakes. By showing us that their asking prices do not accurately reflect their true market value, available comparables present to us clues as to how we can price our home more appropriately to become more saleable than the competition!
If Property B remains available on the market, proving to us that a comparable property cannot achieve £1,000,000 in the current market, then this tells us that we need to determine a better asking price that will make our home more saleable!
Sold and available comparables together gives us the best picture
It’s helpful to think of both types of comparables as opposite sides of the same coin: sold comparables are historical evidence of achievable price; whereas available comparables are current evidence of unachievable price.
And much like sold comparables, available comparables should not be relied upon solely nor looked at in isolation - both sold and available comparables are major pieces of the puzzle that should be looked at together in order to get the best picture of our home’s value and asking price!
The ratio of sold comparables vs. available comparables
One other thing to mention when looking at both types of comparables together - we should also consider the ratio of sold comparables compared to available comparables in the area.
For example, if there are more sold comparables than available comparables in our area, then we are likely in a high demand area. But if there are more available comparables than sold comparables in our area, then we are likely in a low demand area.
Knowing the level of demand in our area helps us to adjust the value and price of our home accordingly.
For example, if we are in a high demand area, then we may have some leeway to adjust the value and price of our home to be (slightly) higher, since more properties have been sold than there are available on the market, i.e. a lower supply of properties (especially if those sold properties were sold at a shorter average timeframe), leaving less choice for other buyers who are looking in the area.
But if we are in a low demand area, then we may need to value and price our home more attractively and competitively, since there are more properties available on the market than those that have been sold, i.e. a higher supply of properties (especially if those sold properties were sold at a longer average timeframe), allowing plentiful choice for buyers who are looking in the area!
Key metrics and benchmarks of comparables
When looking at the comparables, it is important to consider some key metrics and benchmarks, such as price per square foot (£/sqft) and the number of bedrooms.
Price per square foot
It would be extremely useful to know both the average asking (i.e. available) and sold prices per square foot of comparables in a particular area. We can find this information in a few ways.
Average price per square foot based on the comparables
We can first look at, for example, the 3-5 latest sold comparables over the last, say 6-18 months; calculate the price per square foot based on the sold price and the total square footage for each comparable, and take the average price per square foot of those comparables.
We then do the same calculation for the 3-5 latest available comparables over the last 6-18 months.
Average price per square foot based on local search
Another way to find the average prices per square foot is through local search around the area in which our home is located.
To better understand this, let’s assume that our home is a three bedroom property with the postcode NW3 7RS in Hampstead, London.
Based on this example, I have conducted a local search on the area around NW3 7RS, shown in the images below.
(Please note that I have chosen this search radius for the purposes of providing a good and sufficient sample size for this example. The search radius can certainly be narrowed down but we will see a smaller and insufficient sample size as a result)
AVERAGE ASKING PRICE PER SQUARE FOOT
AVERAGE SOLD PRICE PER SQUARE FOOT
From these images, we can see that the average asking and sold prices per square foot of our chosen area over the last 18 months are £993/sqft and £926/sqft respectively.
These average prices per square foot are essentially the benchmark of our chosen area and for our home.
Purely from a location and size perspective (not factoring presentation); the value and asking price of our home should work out to be closer to the average sold price per square foot to more accurately reflect the true market value and to ensure a sale at the best price; rather than closer to the average asking price per square foot, since an asking price means that the property is still available on the market, which in turn, means that it’s an unsold property.
Based on our local search, properties in our chosen area have been sold at £926/sqft on average, but remain unsold at £993/sqft on average. The value and asking price of our home should therefore work out to be closer to £926/sqft than £993/sqft to more accurately reflect the true market value and to ensure a sale at the best price.
Price per square foot is an important metric for valuing a property and determining the asking price. Click here to read more on why price per square foot matters.
Price based on the number of bedrooms
The number of bedrooms is another key metric and benchmark, as it plays a significant factor in the value and asking price of a property.
To better understand this, let’s assume once again that our home is a three bedroom property with the postcode NW3 7RS in Hampstead, London. And let’s take a look once again at the same local search on the area around NW3 7RS.
(Please note once again that I have chosen the most suitable search radius for the purposes of providing a good and sufficient sample size for this example)
AVERAGE ASKING PRICES IN ACCORDANCE TO THE NUMBER OF BEDROOMS
AVERAGE SOLD PRICES IN ACCORDANCE TO THE NUMBER OF BEDROOMS
We can see from these images that in our chosen area over the last 18 months, the average asking and sold prices of:
A two bedroom property is £833,000 and £1,140,000 respectively.
A three bedroom property is £1,360,000 and £1,340,000 respectively.
A four bedroom property is £1,960,000 and £2,040,000 respectively.
These average prices are also the benchmark of our chosen area; and specifically, £1,360,000 and £1,340,000 are benchmarks for our home as a three bedroom property.
Purely from a location and size perspective (not factoring presentation); the value and asking price of our home should be closer to £1,340,000 than £1,360,000 to more accurately reflect the true market value and to ensure a sale at the best price.
It is also important to note that purely from a location and size perspective, the value and asking price of our home should be close to the benchmarks discussed (i.e. both price per square foot and price based on the number of bedrooms) without significant deviation. In other words, it would be difficult to justify our home to be significantly higher in value, not to mention difficult to justify a significantly higher asking price, above the benchmarks, purely from a location and size perspective.
Any justification would be down to the presentation of our home and how it compares to the presentation of the comparables.
Getting in touch with me
If you would like to discuss any of the above points with me further, or if you need help or have any questions in general, click here to get in touch with me.
In the next section, I discuss saleable pricing, in particular, how we can make our home more saleable than the competition - this involves understanding where our home fits among the sold and available comparables in the market.
Why should our home be more saleable?
Buyers naturally buy by comparison and so we should be pricing our home in such a way that excites them and stimulates and captures their interest!
Earlier I explained that a sold comparable represents the best choice over the competition within its area and/or market. If our home is the most saleable, then this means that that very property represents the best choice over the competition within its area and/or market!
So if you want to know how we can make our home more saleable than the competition, come join me in the next section.