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Comps (Comparables): Definition & Meaning

Updated: November 22, 2022

The real estate industry involves many moving parts and a lot to know and understand. For example, you need to consider the listing price, different types of insurance, evaluations, and much, much more. 

But how do listing agents or investors determine pricing and the overall value of a property? Well, there is a lot that goes into it, but one way is by looking at comparables. Find out everything you need to know about comps by reading on!

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    KEY TAKEAWAYS

    • Comps sales are similar properties in the same area that help value a real estate property.
    • When appraising a property, appraisers look at comparable sales in the surrounding area.
    • They also consider market conditions to help determine the value of the subject property.

    What Are Comps?

    Comps, or comparables, are similar properties in the same area that help value a real estate property. When appraising a property, appraisers will look at comparable sales in the surrounding area. They also consider market conditions to help determine the value of the subject property.

    Comps In The Retail Sector

    When appraising a commercial retail property, it is important to understand the types of businesses nearby. These will have an effect on the property’s value.

    Suppose there are mostly high-end restaurants and luxury retailers in the area. Then a new discount store would likely have a lower value than if the same store was in an area with mostly mid-range stores.

    Appraisers will also look at other factors when determining the value of a retail property, such as:

    • The age of the property
    • The condition of the property
    • The size of the property
    • The location of the property
    • The number of parking spaces
    • The traffic count

    It is also important to note that retail properties often get valued using the income approach. The value of the property is directly related to the income it generates.

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    Calculating Retail Sales Comps

    There are two main methods that you can use to calculate retail sales comps: the cost method and the income method.

    The cost method involves estimating the replacement cost of the subject property. You then subtract any depreciation that has occurred. This provides an estimate of the property’s value if it were on the market today.

    The income method, on the other hand, looks at the potential income that the property could generate if you leased it out. The appraiser will consider many factors. i.e, the current market rent, the length of the lease, and any tenant improvement allowance in order to come up with a value for the property.

    It is important to note that both of these methods have their own strengths and weaknesses, so it is best to use both when appraising a retail property.

    Don’t hesitate to use additional resources when valuing house comps. It’s a good idea to compare nearby comps if you have your eye on a promising comp.

    Business Valuation Method

    When appraising a business, there are three main valuation methodologies that you can use. The income approach, the market approach, and the asset-based approach.

    The income approach looks at the business’s potential future earnings in order to come up with a value for the company. This approach typically gets used when valuing businesses that have a long history of profitability. Also, you should expect them to continue to be profitable in the future.

    The market approach, on the other hand, looks at similar businesses sold in the past in order to come up with a value for the subject company. This approach typically values businesses that do not have a long history of profitability or real estate market trends that aren’t expected to turn a profit in the future.

    The asset-based approach values a business based on the value of its assets. This approach values businesses that are in bankruptcy or are otherwise not expected to generate any future income.

    It is important to note that all three of these valuation methodologies have their own strengths and weaknesses. So it is best to use all three when appraising a business.

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    What Are Comps In Real Estate?

    Comps, short for comparables, are properties in the same area that aid in helping value a real estate property. When appraising a property, appraisers will look at comparable sales in the surrounding area. They also consider market conditions to help determine the value of the subject property.

    A comps report is a report prepared by an appraiser that contains information on comparable sales in the surrounding area. The report includes information on the sale price, square footage, and other relevant details. The purpose of a comps report is to provide an estimate of the value of a property.

    If you are considering buying a house, it is important to order a comps report. This report will give you an estimate of the value of the property you’re interested in. It will also provide information on comparable sales in the area. This information can help negotiate a purchase price with the seller.

    When considering a property, it is also important to look at market conditions. If there have been a lot of foreclosures in the area, for example, this could mean that prices are low. On the other hand, if there is high demand for housing in the area, this could mean that prices are high.

    Who Uses Real Estate Comps?

    Real estate professionals use comps to help value properties. This includes appraisers, real estate agents, and loan officers.

    Appraisers use comps to estimate the value of a property. They consider factors such as the sale price, square footage, and location when appraising a property.

    Real estate agents use comps to help them price homes for sale. They also use comps to help them negotiate with sellers.

    Loan officers use comps to help them determine whether or not to approve a loan for a home purchase. They also use comps to help them determine the interest rate on a loan.

    Examples Of Comps

    Here are some examples of comps:

    1. A three-bedroom house in the same neighborhood that sold for $500,000.
    2. A four-bedroom house in the same neighborhood that sold for $600,000.
    3. A five-bedroom house in the same neighborhood that sold for $700,000.
    4. A six-bedroom house in the same neighborhood that is currently for sale for $800,000.
    5. A seven-bedroom house in the same neighborhood that is currently for sale for $900,000.
    6. The median sale price for houses in the neighborhood is $750,000.
    7. The average sale price for houses in the neighborhood is $775,000.
    8. The most recent sale in the neighborhood was a three-bedroom house that sold for $500,000.
    9. The most recent sale in the neighborhood was a four-bedroom house that sold for $600,000.
    10. There have been five foreclosures in the neighborhood in the past year.

    As you can see, there are a number of factors worth considering when looking at comps. The sale price, square footage, and location are all important factors. Market conditions, such as the number of foreclosures in the area, is also worth considering.

    When looking at comps, it is important to consider all of these factors. This will help you get a more accurate estimate of the value of a property.

    Summary

    Comps, short for comparables, are properties in the same area that can help value a real estate property. Appraisers use comps to estimate the value of a property. They consider factors such as the sale price, square footage, and location when appraising a property.

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    Comps FAQs

    What are business comps?

    Business comps, or business comparables, are businesses that can help value another business. Businesses use business comps to help them determine the value of a business they’re interested in buying or investing in.

    What are stock comps?

    These are stocks that can help value another stock. Investors use stock comps to help them determine the value of a stock they’re interested in buying or investing in.

    What is a comp analysis?

    A comp analysis is an analysis of comparables. This can work for businesses, stocks, or real estate properties. A comp analysis looks at factors such as sale price, square footage, and location to determine the value of a property.

    How are comps calculated?

    Comps get calculated by considering factors such as the sale price, square footage, and location of a property. Businesses and investors use comps to help them determine the value of a stock or business.

    How long are comps good for?

    Comps are typically good for six months to a year. This is because market conditions can change over time, which can impact the value of a property.

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