DEFINITION of ‘Comparables’
Comparables are used in a valuation technique in which a recently sold asset is used to determine the value of a similar asset. Comparables are a list of recent asset sales that reflect the characteristics of the asset an owner is looking to sell. Usually, the list of sales is for the last 12 months. The idea is that recent sales of similar assets will likely reflect the current market for the asset and be a good indicator of the possible sale price. This technique is often used in real estate to determine the initial sale price of a property.
BREAKING DOWN ‘Comparables’
Using comparables for valuation is helpful for accurately appraising any asset. For example, a real estate agent may appraise the value of a home based on the most recent selling price of a house in the same neighborhood with similar attributes, such as square footage and the number of bedrooms and bathrooms.
Example of Comparables Valuation
For example, Bert wants to sell his house. He enlists the help of Steve who is a realtor. After taking a walk-through of the house, Steve pulls comparables for the last 12 months for houses similar to Bert’s in his neighborhood. These comparables are used to determine the list price for Bert’s house.