When evaluating a real estate investment, one of the most fundamental questions an investor must answer is whether the price being asked reflects the property’s true market value. This is not a question that can be answered in isolation. Real estate does not trade on an exchange with transparent, real-time pricing. Instead, value must be inferred from the prices of similar properties that have recently sold or are currently listed. These similar properties are known as comparables, or “comps,” and the process of identifying and analyzing them is one of the most important skills an investor can develop.
Comparable analysis directly informs purchase decisions, loan underwriting, insurance valuations, and exit strategies. When an appraiser determines the value of a property for a lender, they are conducting a comparable analysis. When a seller sets an asking price, they are—or should be—doing the same. Understanding how to research and evaluate comparables allows investors to identify mispriced opportunities, avoid overpaying, and build more defensible underwriting assumptions.
What Makes a Property Comparable
Not every nearby property qualifies as a useful comp. The goal is to find properties that a typical buyer would view as substitutes for the subject property. If a buyer would not reasonably consider both properties when making a purchase decision, the comparison loses much of its value.
The most important characteristic is property type. A single-family home should be compared to other single-family homes, not to condominiums or duplexes. A 20-unit apartment building should be compared to other small multifamily properties, not to 200-unit institutional complexes. The underlying economics differ too significantly across property types to make cross-type comparisons meaningful.
Location matters considerably. In residential markets, this often means looking within the same neighborhood or school district. A home in a highly rated school district may command a significant premium over an otherwise identical home across district lines. In commercial real estate, location considerations include proximity to transportation, visibility from major roads, and the quality of surrounding tenants. A retail property anchored by a national grocer in a high-traffic corridor is not comparable to a similar-sized strip center in a secondary location with high vacancy.
Physical characteristics also drive comparability. Square footage, lot size, number of bedrooms and bathrooms, year built, and condition all affect value. A 1,500-square-foot home with three bedrooms and two bathrooms is more comparable to another 1,500-square-foot, three-bedroom, two-bathroom home than to a 2,500-square-foot home with five bedrooms, even if both are in the same neighborhood. That said, perfect matches are rare, and adjustments must often be made to account for differences.
Timing is another critical factor. Real estate markets can shift quickly, particularly during periods of changing interest rates or economic uncertainty. A sale that occurred 18 months ago may no longer reflect current market conditions. As a general rule, more recent transactions carry more weight. Many appraisers and analysts prefer comparables from within the past six months, though in slower markets or for unique property types, extending the window may be necessary.
Sources of Comparable Data
For residential properties, the Multiple Listing Service (MLS) is typically the primary source of comparable data. The MLS is a database maintained by local real estate associations that contains detailed information on listed and sold properties, including sale prices, days on market, listing history, and property characteristics. Access to the MLS is generally restricted to licensed real estate agents and brokers, though investors can often obtain data through an agent relationship or through platforms that aggregate MLS information.
Public records provide another layer of data. County assessor and recorder offices maintain records of property transfers, including sale prices and deed information. These records are typically available online, though the level of detail and ease of access varies by jurisdiction. Some states, such as Texas, are non-disclosure states where sale prices are not recorded in public documents, which can make comparable research more challenging.
Commercial real estate presents additional challenges. Unlike residential properties, most commercial transactions do not flow through a centralized MLS. Instead, investors rely on a combination of sources. CoStar is the dominant provider of commercial real estate data, offering detailed information on sales, leases, and property characteristics across most major markets. Access requires a subscription, and costs can be substantial, but the depth of data is difficult to replicate through other means.
LoopNet, which is owned by CoStar, offers a more accessible but less comprehensive dataset. It is primarily a listing platform, so it captures properties that are actively marketed rather than the full universe of transactions. Still, it can be useful for identifying asking prices and getting a sense of market activity. Other commercial listing platforms, such as Crexi and CREXi, serve similar functions.
For multifamily properties specifically, rent comparables are often as important as sale comparables. Sites like Apartments.com, Zillow, and Rent.com provide current asking rents for available units. Walking or driving the neighborhood to observe “For Rent” signs and speaking with property managers can yield additional insights that do not appear in online databases.
Adjusting Comparables
Identifying comparable properties is straightforward enough, but rarely will a comp be identical to the subject property in every respect. Adjustments are needed to account for differences, and this is where comparable analysis becomes more art than science.
Consider a simple example. You are evaluating a 1,400-square-foot single-family home with three bedrooms and two bathrooms. The most recent comparable sale in the neighborhood was a 1,600-square-foot home with the same bedroom and bathroom count that sold for $400,000. To use this as a comp, you need to adjust for the 200-square-foot difference. If similar homes in the area trade at approximately $200 per square foot, a reasonable adjustment would be to subtract $40,000 from the comp’s sale price, yielding an adjusted value of $360,000 for the subject property.
Adjustments can be made for a wide range of factors: lot size, garage spaces, basement finish, age and condition, view, and amenities such as pools or updated kitchens. Each adjustment should be supported by market data where possible. If homes with pools in the area consistently sell for $25,000 more than similar homes without pools, that provides a basis for a pool adjustment.
The challenge is that adjustments are often subjective. Two analysts looking at the same set of comparables may arrive at different adjusted values based on the adjustments they choose to apply. This is why using multiple comparables and triangulating toward a range of values is generally more reliable than relying on a single comp. If five adjusted comparables suggest a value between $350,000 and $380,000, you have a defensible range. If those same comparables suggest values ranging from $320,000 to $420,000, the analysis is less reliable and additional research may be warranted.
Rent Comparables
For investment properties that generate rental income, rent comparables are often more important than sale comparables. The value of an income-producing property is fundamentally tied to the income it generates, so understanding what rents are achievable is essential to underwriting.
When gathering rent comps, the same principles apply. Look for units of similar size, condition, and location. Note the differences in amenities—does the comp include utilities? Is there in-unit laundry? Is parking included? These factors affect what a tenant is willing to pay and must be accounted for when comparing rents.
It is worth distinguishing between asking rents and achieved rents. A unit listed at $1,600 per month may ultimately lease for $1,500 after negotiation or concessions. Where possible, try to determine actual lease rates rather than relying solely on advertised prices. Property managers and leasing agents can sometimes provide this information, and services like CoStar track effective rents for many markets.
Rent comparables also help identify value-add opportunities. If a property’s in-place rents are significantly below market, there may be an opportunity to increase income through lease renewals, unit upgrades, or improved management. Conversely, if in-place rents are at or above market, there is less room for income growth, and the investment thesis may need to rely more heavily on appreciation or operational efficiencies.
Conclusion
Comparable analysis is foundational to real estate investing. It provides the market context necessary to determine whether a deal makes sense and at what price. While the process requires judgment and is rarely precise, a disciplined approach—identifying appropriate comps, making reasonable adjustments, and cross-referencing multiple data points—will yield more reliable valuations than relying on intuition or seller-provided projections alone.
The next time you review an offering memorandum or consider making an offer, resist the temptation to accept the stated price at face value. Instead, pull your own comparables, run your own adjustments, and form your own view of value. The extra effort can mean the difference between a profitable investment and a costly mistake.