Commercial Real Estate Comps
What are real estate comps, why are they so valuable, and how are they used?
Real estate comparables, more commonly referred to as real estate comps, are an essential tool for anyone looking to understand the market value of a commercial asset. Any commercial asset, in fact.
The idea of real estate comps is that, in order to understand the current market value of a commercial property, you should look at the historical value and characteristics of other, very similar properties and draw insights from that.
This guide discusses real estate comps in-full. Whether you’ve never heard of comps before, or you’re looking to leverage them in new ways, this page has you covered. Below, we’ll answer the following:
- What are commercial real estate comps?
- Why use real estate comps?
- How Real Estate Comps are Determined
- How to Find Real Estate Comps
What are commercial real estate comps?
“Comparables (comps)” is a real estate appraisal term that refers to properties that have similar characteristics, and therefore similar value to that of another property. Comps are used by a wide range of commercial real estate professionals, but will typically be used for one of two reasons:
- To assess the value of a target property.
- To find more opportunities similar to one that’s already been uncovered.
Real estate comps are generated by machine learning technologies that access and examine layers of property data to find properties of similar value to that of the subject property.
Why use real estate comps?
Real estate comps are a great way to ensure that you’re making sound professional commercial real estate decisions. Leasing comparables help investors assess the potential ROI of a property versus its peers, while sales comparables identify what similar properties to that of your target have sold for in the past.
Comps present a way to dive in and hyper-analyze a property and its relative market with the help of real, relevant data.
Real estate comps are the best way to value a commercial property, and are also a tremendous way for commercial real estate professionals to identify new opportunities.
Commercial Property Value
Most professionals that utilize commercial real estate comps do so to understand the market value of a known property. Because they can harness historical data of other similar properties, with similar characteristics, that exist in similar markets, comps are often a very accurate way to find the current market value of any asset type, in any market nationwide.
Commercial Real Estate Opportunities
In discerning the value of a property, real estate comps can also be used to search for new opportunities. Essentially, if a commercial real estate professional has interacted with a property in the past, or simply understand its value to them, they can take that property, and view comps to see similar opportunities.
For example, an investor can take a property that is already apart of their portfolio and run a comps search on that property to find other properties that they may want to pursue.
How Real Estate Comps are Determined
Historically, real estate comps were driven primarily by property sales history. Today, however, there are many different data points that drive comps.
Advanced tech platforms like Reonomy allow for all kinds of property data to be aggregated and used when creating comparables. So, while sales history is still the main driver, Reonomy real estate comps are also generated using layers of property, building, and transactional data such as a property location, asset type, price of last sale, debt history, and more.
Commercial Property Sales History
First and foremost, without property sales records, real estate comps would not be possible. To provide accurate real estate comps, Reonomy looks at the sales history of a property, as well as its most recent sale.
Looking at previous sales allows you to gain insights into a property’s value over time, if that value has changed, and how it’s changing. Looking at the most recent sale price of a property can give you some insight into the current value of that property. Properties that have similar trends in their sales history are likely under very similar market conditions.
Recently Sold Commercial Properties
Recently sold property data overall is great fuel for real estate comps, also. By looking at similar properties to that of your target that have been sold recently, you can better understand the shape of the current market surrounding those properties, beyond the individual properties themselves.
Property sales history data across comps can help you better understand the market conditions surrounding your target asset.
Real estate comps are also derived from the locational comparability of two properties. In other words, are the comp assets and your target asset under the same locational influences?
Simply enough, for this, Reonomy factors in the location of a property, and derives real estate comps from properties that fall within a similar area, usually very nearby the target property, as they are often under very similar locational influences.
Property location data paired with property sales history data creates a clear picture of how real estate professionals are interacting with certain types of properties, and the potential influences that could affect the way they do so.
Real estate comps are also based on the physical characteristics of a property. The asset type, building size, lot size, condition, and age of a commercial property will play a large part in determining its value, making it important to identify properties that are physically comparable to your target.
Overall, the data used to generate Reonomy real estate comps helps users find properties that are under the same market conditions, are locationally comparable, and physically comparable to that of your target.
Traditionally, commercial real estate comps are found by scouring through public property records.
With Reonomy, you can find real estate comps with a single click of a button on the property profile of any commercial parcel. On top of that, once you’ve generated a list of comparable properties, you can even add more filters to make your results more granular.
Here, we’ll cover a few of the more common comp searches that are run by asset type and geography.
To find land comps on Reonomy, you can search by property details and parcel information like lot acreage to find comparable plots of land. You can also identify comps for different types of vacant land by searching with more specific asset type filters. You can find comps for farm land, commercial vacant land, industrial vacant land, residential vacant land, and more.
To identify multifamily property comps, use the building-level filters such as number of units. Again, as mentioned with land comps, you can also search more specifically for different types of multifamily properties, or for multifamily properties in a specific location, then find real estate comps from there.
When searching for property on Reonomy, you can filter multifamily properties by classifications such as apartment buildings (specified by units), cooperatives, duplexes, triplexes, mobile home parks, and more.
Once you’ve added a few layers of filters, select any individual multifamily property and use the “Find Comps” button to see comparable properties in a specific area.
Below, using Reonomy, we search for a Quadruplex property in LA County built in 2016, then select a property and click “Find Comps.”
There, you can filter the comparable properties using a zip code within LA County. By adding the “90007” zip code to our search, for example, we’re left with just twenty property results.
Industrial Comps in Chicago
Below, we search for an industrial property in Chicago sold within the past 20 years. In Reonomy, after we have selected the property we want to find comps of, we simply press the “Find Comps” button.
We then filter the comparable properties within a particular area code of the Chicago area, 60185, and return only seven properties with comparable value.
Comps by Zip Code
Adding a zip code filter is a good way to limit the area of searchability. It’s also helpful to add filters for specific building data or asset class within that zip code. To get hyper-granular, you can add filters for most recent sale price, zoning information, and so on.
Once you find your target property or properties, click “Find Comps” on a property profile page to identify comps based on your hyper-granular property search.
Let’s look at a few example searches of how you might identify asset-specific commercial real estate comparables within different locations.
Find Comps by Sales History
Sales history is a significant determinant of a relevant comp. By finding recently sold commercial properties that have similar physical characteristics (i.e. location, asset class, square footage, acreage, units, condition, age, and on) to that of your target property and analyzing their sales history, you can better understand the value of your target property.
You can search for properties based on prior sales prices and sales dates. For example, by searching for commercial properties that have been sold within the last year for anywhere in between $500,000 and $700,000, you can get a very fresh idea of what that amount of money could get you today.
By utilizing the sales tab of Reonomy’s search page, you can search by most recent sale date or most recent sale price. Once you’ve done that, simply enter a property profile page and click “Find Comps.”
While these filters do work on their own, they’re best used in unison with one another. Instead of simply searching for “multifamily” or for properties within “Chicago,” you can instead search for “multifamily properties in Chicago that have sold in the last year for $500,000 to $700,000.” Doing so will garner much more specific results, and will thus return incredibly useful real estate comps.