QA03: I Am In The Process Of Analysing Deals But I Cannot Always Find Comps Within The Last Year. What Should I Do?
This is the third episode in our special Q & A Series. We look at what to do when you’re analysing a deal but can’t find the comps you need.
- Not exact science
- Don’t panic when exact matches can’t be found
- Widen your search
- Comps from smaller or larger properties and adjust
- Go back 18 months and adjust
Mark: So, next question’s from Asia who I’ve been actually been speaking on messenger with today. So, hopefully, she’s on because I know that she was unexpectedly not able to go to a networking event tonight. So if she’s on, hello, good evening. So, this was a really good question, one that can often – it can often affect people who have not got a lot of experience valuing properties. So, it’s very easy trying comparables in local areas where there’s a lot of previous sold prices, where’s there’s a lot of the same property type, but sometimes, you will get anomalies where there’ll be a house in the middle of nowhere or in a middle of a turn where there’s just nothing comparable nearby in the last year, because of course for those of you that know how we teach how to do market comparables, you should always use comparables within the last year. Anything outside the last year can sometimes become a little bit unreliable in terms of accurate value. So, always try and look for the last – within the last 12 months, but needless to say, often – sometimes it is difficult.
So, just to start with, what I would do, just a bit of reassurance; it isn’t an exact science. So, when you’re valuing property, don’t panic when there aren’t easy comparables to find – when there’s exact matches to find because really what you want to do is get a ballpark figure. So, in order to get a ballpark figure, there’re generally some key bits of information that you want to know and those key bits of information are going to be the property type. So, unless it’s a very unique property such as a barn conversion or a unique detached property in the middle of fields or something like that, you will tend to find that as you creep further out, you will find something similar and not too far away. So, be careful but not too far away isn’t in a completely different area demographically. So, you know, sometimes, it’s an area that within quarter of a mile, it’s an affluent area and you’re in a poorer area, it can affect the comparables, and – but widen your search and just keep a look and just make sure that there’s nothing, you know, the prices don’t suddenly jump. That will give you an idea roughly as to what the property might be worth. So, widen your search.
And then, what you can also do is work out the comparables. There may be something that’s smaller, something that’s larger, and then just adjust accordingly, you know. Have a look around and see just how much less two beds are to three beds, the similar properties or how much more four beds are to three beds, and that will give you – again, it’s a rough guide then as to what to expect to pay for that property.
And then, if you’re really struggling, if you’re struggling to find comparables within the last 12 months and then things within quarter of a mile that’s anywhere similar, and then you can go back another six months and even maybe up to two years and just, you know, have a look, see – make sure the prices haven’t suddenly increased by a percentage in the area that makes you valuation way out.
And also – and then on this example, Asia was struggling with estate agents who weren’t able to find – who weren’t able to give her comparables. Now, it’s probably more the exception rather than the role because most agents will be able, especially your local independents, you know, the guys that have been in the estate agency since 1900, they are the ones who you’re – who are going to be able to tell you how much a property might be worth in the area. You know, you can pretend that you’re the homeowner. Pretend that you’re the homeowner and just say that you think you might – you just want to know before they come out and waste anyone’s time how much they think the house is probably going to be worth.
And now, generally, even without comparables, you know, I can tell you certain areas of leads what houses are worth without looking at comparables and that’s just local knowledge. So, certainly, you know, I know in this case, Asia, we couldn’t do it with agents, but generally, you will be able to ask agents to find that value.
Brad: Okay. So, we saw couple of questions off the back of this. Kathy’s asking, could you work it out on price per square foot in the area?
Mark: It’s interesting that that should be said. The answer is probably not and more to do with you’ll get – generally, you will get a lower valuation by working at price per square foot and it’s a lot more difficult to do that on a residential basis. So, commercially absolutely, but what happens with residential is there are many factors to take into with residential, and in my experience, trying to do on a price per square foot basis to work out the value of a property is difficulty. You quite often get it on the lower end which means that you might find that you’re putting in really silly offers which needless to say isn’t going to get you very far. So, very good point to raise, but personally, I wouldn’t recommend doing it on a price per square foot basis.
Brad: Okay. Mark’s just asking as well. So, when you’re sourcing for yourself, is this how the surveyor will value when you refinance?
Mark: Yeah. Absolutely. So, the way that estate agents work is very similar to how a surveyor would work apart from an estate agent sees the glass half full and a surveyor will see the glass half empty. So, estate agents usually bolt on a chunk in order to win the instructions and you tend to find estate agents over value a lot of stuff or at least price at the high end of the price range. Whereas surveyors are a lot more factually based in terms of local comparables, properties that are currently on the market, and that may be sold and you can see what price it was on the market and then make an assumption that it sold within maybe 5% to 10%. So, surveyors will work that way for an accurate market appraisal which is exactly how as a sourcer, you should also be doing your comparables. So, you should be erring on the side of caution rather than the hopeful side, and so that when you’re agreeing a price now, whether it’s for a lease option or whether it’s for a flea or BMV, you’re basing it on those comparables, but yeah, exactly right Mark, in the future, when a surveyor comes running to do the comparables for a more good valuation for example, they would adopt the same techniques that we’ve just gone through now with regards to comps.
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