Definition
Comparables (COMPS) are properties similar in key attributes (such as location, size, condition, and amenities) to another property being sold or appraised. Real estate professionals and appraisers use these comparable properties to estimate the market value of the subject property. Algorithms and market analysis tools often rely on a database of comparables to assess the market trend and provide accurate appraisals.
Examples
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Single-Family Homes: If you are selling a single-family home in a suburban neighborhood, the comparables used will include other single-family homes in the same or similar neighborhoods, with similar square footage, the number of bedrooms, bathrooms, lot size, and condition.
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Condominiums: For a condo unit appraisal, comparables might include other units within the same building or nearby buildings that have similar characteristics such as floor plans, view, amenities, and homeowners’ association fees.
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Commercial Properties: Commercial real estate comparables might be other office buildings, retail spaces, or industrial units in a similar geographic area with comparable tenant types, rent rolls, and lease structures.
Frequently Asked Questions (FAQs)
What qualifies as a comparable property?
A comparable property qualifies if it shares key characteristics with the subject property, such as type, location, size, age, condition, and amenities. It should ideally have been sold recently in a competitive market to reflect current market values accurately.
How are comparables used in appraisals?
Appraisers analyze comparables to adjust the value of the subject property. They account for differences between the subject property and the comparables to arrive at an adjusted value that reflects the market value of the property being appraised.
Why are comparables important in real estate transactions?
Comparables help buyers and sellers understand the fair market value of a property. They provide an evidence-based approach to pricing, ensuring that neither party overpays or undersells based on current market conditions.
How far back in time should comparables be considered?
Typically, comparables should be from the recent past, within the last six months to one year. The closer the sales date to the current market, the more accurate the comparable will be in reflecting current market conditions.
Can comparables from a different neighborhood be used?
It is preferable to use comparables from the same or similar neighborhoods to ensure that location-specific factors are adequately accounted for. However, in cases where there are insufficient local comparables, nearby neighborhoods with similar characteristics may be used.
- Adjustment: In appraisal, adjustments are modifications made to the values of comparables to reflect differences between them and the subject property.
- Appraisal: The process of estimating the market value of a property based on comparables, market trends, and physical attributes of the property.
Online References
- Zillow - Understanding Real Estate Comparables
- Realtor.com - How to Find Real Estate Comps
- Investopedia - Comparables
Suggested Books for Further Studies
- “The Appraisal of Real Estate” by Appraisal Institute
- “Real Estate Market Analysis: Methods and Case Studies” by John M. Clapp and Stephen D. Messner
- “Finding and Analyzing Commercial Real Estate Deals” by Francois Blanc and Bernice Clarke
Fundamentals of Comparables: Real Estate Basics Quiz
### Do comparables always have to be within the same neighborhood as the subject property?
- [ ] Yes, they must always be within the same neighborhood.
- [x] No, they can be from nearby neighborhoods with similar characteristics.
- [ ] Comparables can be from any neighborhood, regardless of similarity.
- [ ] Comparables should come from different cities for a diverse view.
> **Explanation:** While it is preferable to use comparables from the same neighborhood, nearby neighborhoods with similar characteristics can also be used if local comparables are insufficient.
### How frequently should comparables be updated to reflect accurate market conditions?
- [ ] Every five years
- [ ] Once during each decade
- [x] Every six months to one year
- [ ] As rarely as possible to save on costs
> **Explanation:** Comparables should be updated every six months to one year to reflect accurate and current market conditions, as real estate markets can change rapidly.
### What is the primary reason for making adjustments to comparables?
- [ ] To increase the selling price of the subject property.
- [ ] To complicate the appraisal process.
- [x] To account for differences between comparables and the subject property.
- [ ] To meet regulatory scrutiny.
> **Explanation:** Adjustments are made to account for differences between comparables and the subject property, ensuring a fair and accurate estimation of the property's market value.
### Which source is commonly used for finding comparables?
- [x] Real estate listings and sales databases
- [ ] Personal observations only
- [ ] Government census reports
- [ ] Historic value archives
> **Explanation:** Real estate listings and sales databases are commonly used to find comparables as they provide accurate and up-to-date information on properties that have been sold recently.
### Who frequently uses comparables in their professional work?
- [x] Real estate appraisers
- [ ] Automobile salespeople
- [ ] Insurance adjusters
- [ ] Stock market brokers
> **Explanation:** Real estate appraisers frequently use comparables in their professional work to estimate the market value of properties.
### In what scenario could comparables from a longer time ago be considered?
- [ ] Never, only recent comparables should be used.
- [x] In a market with infrequent sales activity.
- [ ] When appraising historical properties exclusively.
- [ ] When directed by a buyer.
> **Explanation:** In a market with infrequent sales activity, comparables from a longer time ago may be considered to provide an estimate.
### What term refers to the financial analysis aspects of appraisals and adjustments in real estate valuation?
- [ ] Architectural design
- [x] Market analysis
- [ ] Civil engineering
- [ ] Urban planning
> **Explanation:** Market analysis refers to the financial analysis aspects of appraisals and adjustments in real estate valuation, helping determine the fair market value.
### When using comparables, why is similar property type important?
- [ ] It simplifies documentation.
- [ ] It fulfills legal requirements only.
- [x] It ensures more accurate value estimation.
- [ ] It aids in aesthetically pleasing comparisons.
> **Explanation:** Using a similar property type is important as it ensures a more accurate value estimation given similar market behavior and asset characteristics.
### Which platform provides public access to real estate comparables?
- [x] Zillow
- [ ] Federal Reserve
- [ ] NASA
- [ ] World Bank
> **Explanation:** Zillow is a widely-used online platform that provides public access to real estate comparables, helping in market analysis and property valuations.
### Why are nearby neighborhood comparables sometimes acceptable?
- [ ] To introduce variety.
- [ ] To satisfy buyer curiosity.
- [ ] To confuse the seller.
- [x] To account for a shortage of comparables in the same neighborhood.
> **Explanation:** Nearby neighborhood comparables are sometimes acceptable to account for a shortage of comparables in the same neighborhood while still maintaining similarity in market factors.
Thank you for exploring the concept of comparables in real estate and engaging with our comprehensive quiz. Continue enhancing your expertise in the real estate domain!
