Home sellers typically rely on information about recent sales of nearby homes to figure out how much their own home might be worth. But home buyers also can use this data, commonly called “comparable sales” or “comps,” to decide how much to offer for a home.

Comps track price trends

Rather than assume the seller’s asking price is the market value of the home, buyers can use comps to figure out an appropriate price to offer, explains Barry Nystedt, a broker at Buyer Broker Realty in Newton, Mass. Comps can also be used to track market trends, assess how active a market is and weigh whether a home has been competitively priced.

Buyers should consider the timing of home comps as well as the prices, Nystedt adds. While many sales close within four to six weeks, some take as long as five or six months. Those longer sales may be poor comps to use since they could reflect outdated market conditions. A competent Realtor can help buyers identify home sales that are truly comparable and interpret the information about those sales.

Some buyer’s agents will call the seller’s agent and ask about comps to help the buyer decide how much to offer. That strategy can be very effective, according to Linda Walters, a broker at Sage Realty in Wayne, Pa.

“If they can’t provide any comps, I have a leg-up on the negotiation because they know that I know that they can't back up their asking price,” she says.

Comps can help — but not always

Comps can be especially important for buyers if the seller has received multiple offers that have bid up the sale price. That’s because the home’s appraisal might not support that higher price, explains David Kerr, a team leader at ZipRealty in Oakland, Calif. If the appraiser believes the home is worth less than the agreed-on sales price, the buyer might have to pressure the seller to accept a lower price, pay the difference in cash or try to convince the appraiser that the home is worth more, so the loan will be approved. In any event, comps may be helpful.

That said, comps can lose their luster if a home nets a very large number of offers for much more than the asking price, says Fern Masters, broker/owner of Flagship Realty of Palm Coast in Palm Coast, Fla.

“If you are in that situation, comps don't really help you. If you want to buy that house, you have to give the sellers what they want,” she warns.

Comps also may be irrelevant if the seller’s loan balance exceeds the value of the home (i.e., a short sale) or if the seller is a bank (i.e., a post-foreclosure sale). Some seller’s agents will forward the buyer’s comps to the lender, but very often the lender will ignore that information and rely instead on an appraisal. In that case, the bank’s decision of whether to accept the buyer’s offer very often will be, as Kerr puts it, “at the whim of an asset manager.”