What Is A Comparable Property?
A comparable property is a property or space for which there is a relevant lease or sales transaction that can help indicate the market sale price or lease rate of a similar subject property in a given market for a given period of time.
Sales Comparables
The comparable property serves as the basis for the comparable sales approach to estimating market value. This approach is also known as the market comparison or market data approach. Sales transactions of comparable properties are termed "sales comps." Sales transactions eventually become a matter of public record in most states.
Lease Comparables
The same approach applies to estimating market lease rates. Relevant lease transactions of comparable properties can help indicate the lease or rental rate for similar properties. These lease transactions are referred to as "lease comps." Lease comps are generally not a matter of public record and are tightly guarded by real estate professionals.
Criteria In Selecting Comparable Properties
Property location, property attributes, financing, sale terms, lease characteristics, and tenant type are all factors to consider when selecting a comparable property. Any factor that ads to, or detracts from the value and desirability of a property must be factored in. Transactions must also be recent enough to be relevant.
Market activity is a factor in selecting a comparable property. If transactions are sparse and market conditions are slow, there may be no relevant recent sales or lease transactions. In this environment, it is challenging, if not impossible to select a comparable property.
In a hot market where prices are being rapidly driven up, there may be a high level of lease or sales activity. In these cases, even the most recent transactions may be irrelevant as they may underestimate value.