When appraising commercial real estate, comps (or comparables) are one of the most important tools for determining a property's value. Comps refer to recent sales of similar properties that can be compared to the subject property. By analyzing the key traits of the comps and comparing them to the subject, an appraiser can arrive at a well-supported opinion of value. Here are some tips for using comps effectively when valuing commercial real estate:
- Find recent sales of similar properties. The best comps are those sold within the past 6-12 months and located in the same submarket as the subject property. The more similar the comps are to the subject in terms of size, age, condition, amenities, etc., the better.
- Verify the accuracy of the comp data. Confirm the sale prices, dates, square footage, and property details by sourcing from multiple places like public records, MLS listings, and speaking directly with brokers involved. Inaccurate data will skew your analysis
- Make necessary adjustments. No two properties are exactly alike, so adjust the comp sales prices for any material differences compared to the subject. For example, adjust for date of sale, location, size, condition, number of units, amenities, etc. Adjustments should be based on market evidence and trends.
- Apply the comparable sales approach. With the adjusted sale prices, compare this data to the subject property and determine an appropriate value range. The indicated value of the subject will generally fall somewhere within the adjusted range of the comps.
- Consider strengths and weaknesses of the comps. Some comps may be stronger indicators of value than others. Analyze the qualitative factors—does a comp have inferior access or deferred maintenance not present in the subject? Are adjustments reliable? Note how strengths/weaknesses impact the subject's indicated value.
- Determine a final opinion of value. Based on your analysis of the adjusted comp data, conclude an appropriate as-is market value for the subject property. Clearly explain how the comps support and lead to the final opinion of value.
Using comparable sales is typically the most straightforward way to develop a credible opinion on commercial real estate value. With high-quality comps and appropriate adjustments, an appraiser can produce a well-supported valuation. Comps should be used in conjunction with other valuation methods as part of a robust appraisal process.
Disclaimer: The information provided in this article is for educational purposes only and should not be considered financial or investment advice. It is always recommended to consult with a qualified financial advisor or investment professional before making any investment decisions.
Scott Naasz
Founder and President Broker
North Star Commercial Real Estate Advisors Keller Williams Preferred Realty