Comparables or Comps: Finding Good and Accurate Comparables (Comps) is a Critica
Tony Seruga, Yolanda Seru and Yolanda Bishop When you are dealing with commercial real estate and trying to evaluate a piece of commercial property, one of the most important aspects of proper evaluation is making sure that you find good comps. In order for you to prove the market value of the property in question, comps are a definite requirement. If you do not use comps, then you cannot prove if there is a market for that type of property in the area, what the possible absorption rate could be, or even if the value is accurate. Without the use of good comps, the deal will not be justifiable, so in essence, the lack of comps is actually a real deal killer in the end. If you are unsure of what a comparable or comp is, basically it is referring to the information that you can find on a similar piece of commercial property. They should be very close in their size, price, and type as well. Both sellers and buyers use comps, with the seller determining the value of his property by looking at comps, and the buyer using comps to see what the property is worth before buying it. You can find comps on properties that have been recently sold, or you can also find comps on properties that are currently listed as well. Criteria for Great Comps When you are looking for comps for your property you want to be sure that they are good ones. Comps will do you no good if the information is not accurate and the properties are not actually comparable. The following are a few things to consider when you are looking for the best possible comps. 1. Up to Date Comps - It is imperative that you use comps that are up to date. When looking at comps, you want to know what the property is going to be worth right now. If you happen to get comps that are too old, they will not be able to give you a good picture of the market today. If you happen to look at comps that are already sold, make sure that they have been sold no earlier than in the past six months. 2. Similar Type and Size - When you are looking for great comps, be sure that you pick comps that are similar in both type and size to the property you are considering. 3. Price Range - Great comps should also be in the same price range of the property you are looking at as well. 4. Location - Location is also important when getting good comps. The location of the comp should be similar to the property you are interested in purchasing. If the property you want is beachfront, then the comp should also be beachfront property. 5. Property Condition - When looking for good comps, the property condition should be taken into consideration too. If the property has been newly constructed and the property you want to buy needs a great deal of work, the value will be off. Also, if the property you are considering is in great shape, but the comp is in need of repair, then this will affect the accuracy of the comp too. 6. Similar Amenities - In order to get the best comps, you will also need to take a close look at the amenities. Make sure that the amenities of the comp are as close as possible to those of the property you want to purchase. 7. In Your Area - You will also want to try and find comps that are in your area. The reason you want comps in the same area is because you need to know the value in that specific area. It is usually best to keep them within a few miles of the property you are looking at; however, closer is better if possible. Where to Find Comps If you are looking for comps, there are a variety of places that you can get them. First of all, the broker that you are working with should be able to help you find some good comps. Also, you can take a look at the MLS system if you have access to it to find some good comps. There are also some great websites on the internet that now help to provide people with the comps that they need. A few places to check out include CoStar.com and Loopnet.com. If you still need some help finding comps, then consider asking some of the other commercial brokers in your area as well. 3 Types of Comps There are three specific types of comps that you will possibly need to gather; however, this is going to be dependent upon the specific type of property that you are trying to investigate. 1. As Is Comps - The first type of comps you may need to use is "as is" comps. These types of comps are properties that are close to what you are looking at. They should be in the same type of zoning as well as in the same state of disrepair as the property you are investigating. It is important that you do not use comps that have been recently rezoned or repaired. 2. ADV Comps - ADV comps or After Development comps are comps that have already been improved. These comps are ready for buildings to be constructed and may include sidewalks, sewers, streets, and utilities. You may also hear these type of comps referred to as "pad ready" comps. 3. ARV Comps - ARV actually stands for "after repair value" and it is used on buildings that need to be repaired. This will give you an idea of what the value will be after the property is repaired. When you are considering investing in commercial real estate, finding accurate comps is one of the most critical steps you need to take. Without great comps you cannot accurately tell the property value, and you may not be able to go through with the deal. So, if you want to make sure that you get commercial property for a good price, make sure that you find good and accurate comps. About the Author
Tony Seruga, Yolanda Seruga and Yolanda Bishop of Maverick Real Estate Investments, Inc. work with builders, developers and other players in the commercial real estate industry to acquire and develop properties. They use progressive investment strategies that have proved extremely profitable. In addition to their own deals, they teach both seasoned and inexperienced investors how to be big players in the game. Tony Seruga, Yolanda Seru and Yolanda Bishop may be contacted at http://www.maverickrei.com. Click here to view more articles by Tony Seruga, Yolanda Seru and Yolanda Bishop. Reprinted with Permission from IdeaMarketers.com
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