One of the realties of real estate is that we’re constantly comparing properties to other properties.
It’s a natural reaction to being forced to decide between two or more options. You can only have one, so how do you decide which is the best?
At the heart of that question is an assumption that the options are, in fact, comparable.
The broader we define something, the easier it is to find comparables.
If you were keen on having a snack and decided you wanted some fruit, you’ve got lots of options.
- Sweet or tart?
- Juicy or dry?
- Plain or prepared?
Depending on how you prioritize the attributes you want in your snack, some fruits are no longer in the running. If you decide you really want a crisp, tart experience, then biting into an orange is going to be singularly unsatisfying. On a number of levels, the experience is just wrong – because while oranges and apples are both fruits, they’re different in a number of ways.
In real estate, we often encounter people who focus on the fruit as a whole but ignore the specific aspects of each type of fruit. Here’s the three questions you need to ask to make sure you are comparable apples to apples.
What are the attributes of the property? (Classification)
We don’t often compare peaches with potatoes. Sure, they’re both about the same size, but we know they’ve got some fundamental differences. A peach is a fruit, which is what all produce are botanically classified as if they contain seeds. A potato is a plant’s edible tuber.
In real estate terms, the attributes of a property dictate whether we can compare it to another property. At the broadest level, we have freehold properties versus condominium properties.
- The simplest way to distinguish between the two is that with freehold properties you own the entirety of the property, including interior, exterior and the land.
- In comparison, condominium properties (apartments, townhouses, etc.) have you owning only the interior, with the condo corporation owning the exterior and common areas, including the land.
Beyond this fundamental distinction, we have types of properties (detached, semi-detached, townhouse, etc.) and then styles within each of those types (bungalow, two-story, side-split, etc.) and of course price.
We often see people trying to compare properties that are classified very differently. While it may not be apparent from the street, there is a reason why a condo townhouse is valued less than a freehold townhouse, as with a condo townhouse you don’t own anything except the interior of the townhouse (in most cases).
Rule number 1 is therefore “Only compare the same type of properties”. Bunaglows vs. bungalows, multi-level condo apartments vs. multi-level condo apartments and so forth.
Who would buy this sort of property? (Use)
Another way in which we can differentiate between peaches and potatoes is the use. It’s pretty rare to see potatoes used in a dessert parfait and you probably have never had peaches au gratin. We know that peaches and potatoes are different because they’re used in very different ways.
In real estate terms, the way a property can be used is equally important – and it often boils down to who would want to live in the property.
This is determined by considering the attributes of the property and thinking about the implications.
- The size of the property dictates who is interested in living there. A small home with only two bedrooms and one washroom will not be appealing to a large family.
- The presence or absence of certain attributes impacts who wants the property. A garage is important to someone with a nice car who wants it protected, but holds little value for someone who doesn’t have a driver’s licence or vehicle.
- The location of a property is crucial for many buyers and often limits the pool of potential purchasers. A rural property won’t likely be bought by someone who works in the city downtown and would need to commute a significant distance every day.
Rule number 2 is therefore “Only compare properties that both work well for the same buyer”. Don’t use a neighbouring property if it is fundamentally different and would appeal to a totally different buyer, consider who would live in the comparable not just the attributes, and so forth.
What does the property feel like? (Taste)
The final way in which we can easily determine that potatoes and peaches aren’t good comparables is the taste. The sweetness of a peach versus the savoury nature of a potato is a strong clue that these are not in any way the same piece of produce.
In real estate terms, this would equate to the feel of a property. When we look beyond the attributes of a property and who would find it appealing, we can still have situations where differences in the finishes, layout and feel make two places wholly incomparable.
- A home done in French Provincial style may be gorgeous to one buyer but completely unappealing to another. Significant differences in décor between two properties means that you should tread carefully before comparing them to each other.
- High-end appliances, spa bathrooms and renovated, master retreats all influence the feel of a home. While a dollar value can be assigned to sort of work, there is also the value of time and energy and a home that could look “just as nice with $100K” is not worth $100K less than the lovely comparable.
Rule number 3 is therefore “Don’t compare properties that feel substantially different”. It may be possible to make the comparables quite similar but if the current feel of one is very different than another, don’t ignore that difference in feeling.
The three rules we established above make it easy to check to see if the properties being compared are in fact comparable.
- Do both properties have the same fundamental attributes? If not, you can’t compare the two.
- Could both properties meet the needs of a specific buyer? If not, don’t compare them.
- How do you feel about the two properties? If the feelings are substantially different, don’t compare them.
It is a complicated process to compare different properties and many real estate professionals try to present it as a science, whereas the choice of your comparables is more of an art form. If you want to work with people who understand how to help you make the best choice, then don’t hesitate to get in touch.