Definition
Comparables (often called “compsâ€) are similar properties or recent transactions used to estimate a subject property’s value or market rent. The logic is simple: if two assets are truly similar, they should trade and lease within a reasonable range after accounting for differences.
Types of Comps
- Sales comps: closed sales used to estimate property value (price, $/unit, $/SF, cap rate).
- Lease comps: signed leases or asking rents used to estimate market rent and concessions.
- Expense comps: operating benchmarks (taxes, utilities, payroll, repairs, management fees).
- Capital comps: renovation costs, bids, and replacement/installed costs (CapEx per unit).
How Comps Are Used
Comps support the sales comparison approach in valuation and help investors validate underwriting assumptions. In practice, comps are used to:
- Estimate market value: translate a comp set into a value range for the subject.
- Validate rents: confirm achievable market rent, premiums, and concessions.
- Triangulate cap rates: compare in-place income and sales prices to infer going-in yields.
- Stress-test exit price: sanity-check disposition assumptions (price, cap rate, $/unit).
- Spot mispricing: find deals where price is out of line with local evidence.
What Makes a Good Comparable
The best comps are the ones that match the subject on the variables that actually drive price and rent:
- Location: same submarket, school district, proximity, micro-location quality.
- Asset type & unit mix: same product (garden vs mid-rise), similar bed/bath distribution.
- Size & density: similar unit count, average unit size, and layout efficiency.
- Vintage & condition: construction year, renovation level, deferred maintenance.
- Quality & amenities: parking, laundry, HVAC, common areas, views, security, finishes.
- Income quality: similar rent roll strength, delinquency, concessions, other income.
- Timing: recent closings/leases in the current rate and supply environment.
Common Adjustment Methods
Rarely are properties identical. Analysts adjust comps to make them “apples-to-apples.â€
- $ per unit adjustments: adjust for unit size/quality, parking, renovations, or deferred maintenance.
- $ per SF adjustments: common in office/retail/industrial; can be useful for residential as a check.
- Income approach bridge: compare NOI and cap rate; normalize for expenses and vacancy assumptions.
- Concession normalization (leases): convert free rent/discounts into effective rent.
Example
You are valuing a 40-unit garden property. Three recent nearby sales suggest a range of $175,000–$190,000 per unit. Your subject has slightly older interiors and some deferred maintenance, so you apply a conservative adjustment:
- Comp range: $175k–$190k per unit
- Condition adjustment: -$10k per unit
- Indicated value range: $165k–$180k per unit
That translates to a value range of $6.6M–$7.2M (40 units × $165k–$180k), which you can compare against an NOI/cap-rate valuation for a cross-check.
Common Pitfalls
- Using “ask†instead of “achievedâ€: listing prices and asking rents can be aspirational.
- Not normalizing income: comps with unusual other income, concessions, or expenses distort NOI comparisons.
- Ignoring unit mix: 1-bed heavy properties can trade differently than 2-bed heavy properties.
- Time mismatch: older comps may be irrelevant after rate moves or new supply deliveries.
- Selection bias: picking comps that “support the story†instead of the closest matches.
- Micro-location blindness: two properties a mile apart can be in different rent bands.