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About Choosing Comps

In the offering memo prepared, in almost all cases, a detail of rental comps is provided. As it is a primary fiduciary duty of a real estate agent to maximize the sales price of any marketed asset, it makes sense that a smart broker will select comps that display their property in the most positive light. In some cases, the broker chosen comps are, in fact, the best true representatives. However, in most instances, I have found that they are not.

Obviously, location is a significant factor, with properties geographically proximate to the subject being important. However, simply choosing the five or six nearest properties can lead to a distorted assessment of the acquisition target.

The critical feature that all comps must have is that they must be a realistic consumer alternative to the subject property. In other words, you must view the comps through the eyes of a potential future renter.

Of course, location is going to be a paramount consideration. In most instances, potential renters identify their preferred location, and then go about winnowing down the alternatives to a handful of properties that they may actually research further and/or visit. It is this “handful” of properties that will be most useful to an investor for comparative purposes during the due diligence period.

Of the remaining factors a potential future renter will consider, price is arguably the most critical factor, even surpassing location. After all, if a potential renter identifies a preferred location, but cannot find any options that fit within their budget, they will likely begin investigating secondary location options. While verifying current asking rents for these comps, it is vital that any current concessions or discounts be considered. Further, the inclusion/exclusion of other items like utilities, in-unit laundry and parking must be factored in.

Other elements that should be considered when selecting the proper comps include; property age/condition, building type (garden style, mid-rise, high-rise, etc.), included amenities, parking (on-street, surface or enclosed), current tenant base (young professional, family oriented, senior housing, etc.) as well as those factors that may be unique to the specific municipality or neighborhood.