When you are trying to get comps for commercial real estate it is imperative that the comps you get are up to date, since you need to know what the property you are looking at is currently worth.
This will help you get an accurate idea of what the market value of the property is. When you go with comps that are too old, it will not give you an accurate idea of the value in today's market. Usually you'll want to go with commercial real estate comps that are less than six months old. The comps you get also need to be "like" comps as well, since you'll want the comps to depict the accurate value of the property you are interested in. Basically you don't want to compare an industrial property with an office building, since this won't enable you to come up with the accurate value. Be sure that the comparables you get are similar to the size and type of the property you are looking into.
Considerations When Researching Comps
When you are researching your comps in order to acquire accurate data on the commercial real estate you are considering, there are several factors you'll need to keep in mind. The following are a few things to consider in order to get the best possible comparables.
Consideration #1 - Similar Properties - The comps that you choose need to be similar properties, in both type and size, to the commercial real estate you are planning on purchasing.
Consideration #2 - Price Range - The price range of the properties that you use for comps should be close to the asking price of the commercial real estate you are planning on purchasing.
Consideration #3 - Location of the Property - Another consideration to remember when you are looking for the best comps is the property location. You should choose comparables that are on a similar piece of property that your prospective property is on. If you are looking at commercial real estate on the water, then make sure your comps are on the water as well. Geographically speaking, your comps should be within a mile for the best comparables, although you can go up to five miles away if you have to.
Consideration #4 - Property Condition - You should also be sure that you take the condition of the property into consideration. If the commercial real estate you are considering is in great shape, you won't want to look at comps that are on run down properties.
Consideration #5 - How Long on the Market - You should also check how many days the like kind comps were on the market before they were sold. If the property took a long time to sell, then there is probably a reason. Also, if it sold fast, there is probably a reason behind that as well.
Consideration #6 - Amenities of the Properties - Another thing to keep in mind when researching comps, is the amenities of the properties. Make sure that the comparables have very similar amenities to the commercial real estate that you are planning to purchase.
The Exceptions to the Rule
In some cases you may not be able to find comps that are in the immediate area, in which case you'll have to look for comps in the same city. If you have looked for comparables that are within 5 miles of the property you are considering and you cannot find them, it will usually be okay to go ahead and go for comps in the same town or city.
In some cases you may not be able to find any up to date comparables for your prospective property. This may cause you to use comps that are as old as 2 years if there are just no matching recent comparables. If these are the only comps you can find, then you'll probably have to go with them.
Locating Your Comps
You may be wondering how you can find good comps. Well, there are several different ways to find good comparables. One great way to get the comps you need is to ask the broker that you are working with for comps. Another option is to use the MLS system that is used by realtors if you can get access to it. There are several online sites, such as CoStar.com and Loopnet.com that can supply you with the comps you need. The more comparables you can get, the better, so work to get as many as you can.
3 Types of Comps
There are three different types of comps that you may be gathering, depending on the type of property you are looking into. Here are the three types of comparables you'll need to be familiar with.
Comps that are "As Is" - These comps are properties that are similar to the commercial real estate you are considering in the current state of disrepair and current zoning. You cannot use comps that have been rezoned or improved.
After Developed Value Comps - This is a comp that involves land that has been improved with the infrastructure needed for building construction. This can include sidewalks, curbs, streets, utilities, gutters, and sewer.
After Repaired Value Comps - These comps are used when you have a building that needs to have some repairs done. This deals with the price that the property will be worth on the current market after you have restored it to good condition.
As you can see, having accurate comps is very important when getting into a commercial real estate deal. If you cannot get your broker to give you the comps you need, then you may want to tell them you'll have to either get out of the deal or find another broker that can help you find the comparables you need to make an informed decision. Usually, this will help motivate the broker to get the comps you need, since the broker won't want to lose the deal or their commission. Either way, make sure you find strong and accurate comps that allow you to make an informed decision on your commercial real estate deal.