Comparables

Comparables, or comps, are recently sold properties similar enough to a subject property to indicate its value. They are where a market gross rent multiplier comes from. Each comp that sold with a known rent gives one GRM, and a cluster of them gives the range a buyer or appraiser applies to the subject.

A good comp for GRM purposes matches on more than location and size. It should have a similar unit mix, similar tenant-paid utilities, a similar lease situation and a sale date within the last several months. A comp sold vacant, or with a tenant paying well below market, produces a GRM that says more about the lease than the property.

The number of comps matters too. One sale at a GRM of 9 is an anecdote. Five sales between 9.5 and 10.5 are a market. When the rental comps are thin, widen the area before widening the property type, since a condo GRM says little about a duplex.

Further reading: Comparables on Wikipedia.