– Define what a comp really is – Comparables, or comps, refer to properties found that are similar to the property you're interested in. That can be similar in size (sq '), use and price rage to name a few. This helps to determine the value for the property you're interested in.
– You can get comps on both sold properties and information on active / current listings. Keep in mind, however, that you should focus more on what has sold because an active listing does not guarantee any value – only what someone is asking. When you (or any appraiser) looks for strong comps, the sold properties are most important.
– It is important to get up to date comps comparable to your property because you need to know what the true current value is of the property today. This gives you an accurate snapshot of what the market value is of the property. If the comps are too old and outdated you do not have an accurate picture of today's market value. Generally speaking, within six (6) months is a safe & accurate range.
– It is also important to get "like" comps that are comparable to your property because you want to have comps that depict the value of the property you are exploring. In other words, you would not want to compare and office building with an industrial building – that will not help you determine true value. You want the comps to be exactly like or similar to the same type and size property as the one you're looking to purchase.
– Discuss the criteria you set when researching comps to get accurate data. Here are a few things you can consider:
O Property needs to be similar in type and size as the property you're looking to purchase
O The price range needs to be within close proximate of the asking price of the property you're looking to purchase
O Property location should be similar to the property you're looking to purchase. For example, if you're property is near a body of water then your comps should also reflect the same. Your comps should be georgraphically within a mile ideally and not outside 5 miles.
. There are times it will be hard to find similar comps within this range. If that is the case then you will need to look at least in the same city / town when getting comps for your property.
O The condition of the property
O If sold, check how many days on market.
For example, if it took over a year to sell – there's usually a reason. Conversely, if it sold very quickly there's usually a reason. If on market (again, be careful with on market active properties because they're not necessarily going to sell at or near their asking) see how long it has been on. For example, if it has been on for a year there's a reason why.
O What amenities do they have that are similar
– You may have to get comps from surrounding areas, outside the determined radius or local city / town because there are just no good comparables in the surrounding area that are similar in type, size, price or location. If all areas within 5 miles are exhausted, that is usually acceptable.
– Sometimes we have to use older comps, as far back as 2 years, because there just are not any recent comps that match your property and criteria that have sold recently or come to market. These may be the only available comps you can find.
– How does one locate comps? There are a few ways to get comps. First, the broker you're working with should be able to provide you all the comps you need. You can also use the MLS (Multiple Listing System) that realtors use if you or someone you know has access to that. Additionally, there are commercial sites now that also supply comps like Loopnet.com and CoStar.com (see links below). You can also ask other brokers in the area if they can help supply some comps.
– Investors typically require a minimum of 6 comps to get a true understanding and value of the property. It is recommended that you get 6 sold comps and 6 active listing comps at minimum to get a good snapshot of the area and market for similar properties. Of course, the more comps you can collect the better so get as many as you can when possible.
– Depending on the type of property you are investigating there are basically three kinds of comps you will be gathering:
O "As Is" Comps – An "As Is" comp is a property that is similar to the subject, in its current state of zoning or disrepair. We can not use properties that have already been improved or rezoned to a higher use since it sold.
O ADV Comps – An ADV or After Developed Value comp is a parcel of land that has been improved with the infrastructure necessary for the construction of buildings. This would typically include streets, curbs, gutters, sidewalks, sewer and utilities. ADV comps could also be referred to as "pad-ready" sites in the case of land.
O ARV Comps – ARV comps are used when evaluating a building that needs repair. ARV means "After Repaired Value", and reflects to the price the building would bring in the market after it's been restored to "like-new" condition.
– What to do when you can not get the broker to supply the comps you need is telling them that without comps we will not be able to make a determination on this property and therefore may back out of the deal. Another approach is to tell them that if they will not supply comps we'll get another broker to supply them and then they will have to split their commission with that broker. This usually works well because the broker does not want to lose the deal or split their commission if they are currently working closely with you as their buyer (that, planning on being paid by their seller the full commission).
Finding good comps is one of the most important aspects when evaluating a piece of commercial real estate. This is a definite requirement to prove the worth or market value of the property you are exploring. Without comps you can not prove that the value is correct and that there is a market in that area. You also would have no way of determining what the potential absorption rate will be if you do not look at comparables. Absorption rate refers to the number of properties sold (being absorbed by the market) on a monthly & yearly bases. Basically, without good comps you will not be able to justify the deal so it is a deal killer.
source http://bitcoinswiz.com/utilizing-comps-to-survive-in-a-real-estate-investment/
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