Comparable Sales Analysis for Commercial Real Estate

What Is a Comparable Sales Analysis in Commercial Real Estate?

A comparable sales analysis is the process of evaluating recently sold properties that share similar characteristics with a subject property to estimate its market value. In commercial real estate, this method forms one of the three core approaches to valuation, alongside the income approach and the cost approach.

Lenders, appraisers, and investors rely on comparable sales (often called "comps") to ground their valuations in real transaction data. Unlike residential real estate, where automated valuation models pull from thousands of similar home sales, commercial comps require careful manual analysis due to the unique nature of each property.

The sales comparison approach works best for property types with active transaction markets, such as multifamily buildings, retail strip centers, and small office properties. For highly specialized assets like hospitals or power plants, comps may be scarce, making other valuation methods more appropriate.

When you apply for an acquisition loan or seek to refinance a commercial property, the lender will order an appraisal that almost always includes a comparable sales analysis. Understanding how this process works gives you a significant advantage in negotiations.

Where Can You Find Comparable Sales Data for Commercial Properties?

Finding reliable comp data is the first challenge in any sales comparison analysis. Commercial real estate transactions are less transparent than residential sales, and data sources vary significantly in quality, coverage, and cost.

CoStar Group is the industry standard for commercial real estate data. It tracks sales transactions, lease comps, and property details across all major U.S. markets. CoStar employs researchers who verify transaction details directly with brokers and principals. Subscription costs typically range from $5,000 to $30,000 per year depending on the market and access level.

LoopNet, owned by CoStar, offers a free tier with limited sales comp data. While it lacks the depth of CoStar, it can serve as a starting point for preliminary research. The platform lists active commercial properties for sale and recently closed transactions.

County recorder and assessor records provide the most authoritative source for actual sale prices. These public records document deed transfers, mortgage amounts, and assessed values. Many counties now offer online portals, though data formatting and search functionality vary widely.

Real Capital Analytics (MSCI) focuses on institutional-grade transactions, typically $2.5 million and above. It offers detailed analytics on cap rates, price trends, and investor activity across property types and markets.

Local MLS systems and broker networks can provide comp data in smaller markets where national databases have limited coverage. Building relationships with active brokers in your target market often yields the most current and detailed transaction information.

REIS (Moody's Analytics) provides market-level data on rents, vacancies, and sales trends, offering valuable context for understanding broader market conditions.

What Criteria Define a True Comparable Sale?

Not every recent sale qualifies as a valid comparable. Selecting appropriate comps requires applying strict criteria to ensure the comparison is meaningful. Appraisers and analysts typically evaluate potential comps against five core factors.

Property type is the most fundamental criterion. A Class A office tower is not comparable to a neighborhood strip mall, even if both sold recently in the same submarket. The subject property and comps should share the same general use category and quality tier.

Location proximity matters because commercial real estate values are heavily influenced by local market dynamics, traffic patterns, zoning, and demographic trends. Ideal comps sit within the same submarket. When local comps are unavailable, analysts may look to economically similar submarkets in the same metro area.

Sale date determines relevance. Most appraisers prefer comps that closed within the past 12 months, though 6 months is ideal in active markets. In slower markets, extending the lookback window to 18 or even 24 months may be necessary, with appropriate time adjustments applied.

Size and scale should be reasonably similar. A 5,000 square foot retail building is not a strong comp for a 50,000 square foot retail center. Generally, comps should fall within 20% to 50% of the subject property's size, though this varies by property type and market.

Transaction type must represent an arm's-length sale. Foreclosure sales, related-party transfers, portfolio transactions, and sale-leasebacks may not reflect true market value and are typically excluded or used with heavy adjustments.

How Do You Make Adjustments to Comparable Sales?

Raw sale prices rarely tell the full story. Every property is unique, and the adjustment process accounts for differences between the comps and the subject property. This is where the real analytical skill comes in.

Location adjustments account for differences in neighborhood quality, accessibility, visibility, and proximity to amenities or transportation. A retail property on a high-traffic corner commands a premium over a mid-block location on a secondary street. Location adjustments typically range from negative 15% to positive 15%, depending on the degree of difference.

Size adjustments reflect the inverse relationship between building size and price per square foot. Larger properties generally trade at lower per-unit prices due to a smaller buyer pool and higher total acquisition costs. Analysts apply size adjustment factors based on market-specific data about how pricing scales with building area.

Age and condition adjustments capture differences in physical depreciation, renovation status, and remaining useful life. A recently renovated 1980s building may warrant a positive adjustment compared to a similar building with deferred maintenance. These adjustments consider both chronological age and effective age.

Lease terms and occupancy significantly affect value in income-producing properties. A fully leased building with long-term tenants at market rents is worth more than a vacant or below-market-leased property. Adjustments consider occupancy rates, lease duration, tenant credit quality, and whether rents are above or below market.

Market conditions (time) adjustments account for appreciation or depreciation between the comp sale date and the valuation date. In a rising market, older comps may need upward adjustments. In a declining market, the reverse applies. Local price indices and broker surveys help quantify these changes.

Financing terms require adjustment when a comp sale involved atypical financing, such as seller financing at below-market rates or assumed loans with favorable terms. These arrangements effectively inflate the sale price above what a cash-equivalent transaction would produce.

Use our commercial mortgage calculator to model how different property values affect your financing terms and monthly payments.

How Is Price Per Square Foot Calculated and Applied?

Price per square foot (PSF) is the most common metric for comparing commercial properties on an apples-to-apples basis. Dividing the sale price by the building's gross or net leasable area normalizes the data across different-sized properties.

For office properties, PSF analysis should specify whether the calculation uses gross building area (GBA) or rentable square footage (RSF). The difference can be significant in multi-tenant buildings with large common areas. Class A office space in major metros may trade from $300 to $800 PSF, while Class B suburban office might range from $100 to $250 PSF.

For retail properties, PSF varies dramatically based on format. Single-tenant net-leased retail (like a Walgreens or Dollar General) trades differently from multi-tenant strip centers or enclosed malls. Anchor spaces typically command lower PSF prices than small-shop inline spaces within the same center.

For industrial properties, PSF calculations should account for clear heights, dock-high loading, and office finish percentages. Modern logistics facilities with 32-foot or higher clear heights trade at premium PSF levels compared to older warehouse stock with lower ceilings and limited truck court space.

When analyzing comps on a PSF basis, always verify that square footage figures come from consistent measurement standards. Discrepancies between assessor records, building plans, and broker materials are common.

How Does Price Per Unit Work for Multifamily Properties?

Multifamily properties use price per unit (PPU) as a primary valuation metric alongside PSF. PPU divides the total sale price by the number of residential units in the property, providing a quick benchmark for comparing apartment buildings of different sizes.

PPU varies enormously based on market, unit mix, age, and amenity package. A garden-style apartment complex in a secondary market might trade at $80,000 to $120,000 per unit, while a mid-rise building in a gateway city could command $250,000 to $500,000 or more per unit.

Unit mix adjustments are critical. A building dominated by studios and one-bedrooms will typically show a lower PPU than a comparable building with larger two and three-bedroom units. Analysts normalize this by calculating price per bedroom or by weighting units based on average square footage.

Value-add considerations affect how investors interpret PPU data. A property trading at $85,000 per unit with below-market rents and renovation potential may actually be a better investment than a stabilized asset at $110,000 per unit with limited upside. The gap between current PPU and the market's stabilized PPU range indicates potential value creation.

When evaluating multifamily comps, cross-reference PPU with per-square-foot pricing and cap rate analysis. These three metrics together provide a comprehensive picture that no single metric can deliver alone. Review our guide on property valuation methods for a deeper discussion of how these approaches work together.

How Do Lenders and Appraisers Use Comps in the Loan Process?

Understanding how lenders and appraisers apply comparable sales data helps borrowers prepare stronger loan applications and anticipate potential valuation challenges.

Appraisers typically select three to six comparable sales for their analysis. They present each comp's details, explain why it was selected, apply quantified adjustments, and derive an adjusted sale price for each comp. The appraiser then reconciles these adjusted prices into a single indicated value, giving more weight to the most similar comps with the fewest adjustments.

Lenders review the appraisal's comp selection critically. They may challenge comps that appear cherry-picked to support a predetermined value. Strong appraisals use comps that bracket the subject's expected value, with some adjusted upward and others adjusted downward.

Loan-to-value (LTV) ratios depend directly on the appraised value. If comps support a $5 million value and the lender offers 75% LTV, maximum loan proceeds are $3.75 million. If weaker comps bring the value down to $4.5 million, proceeds drop to $3.375 million, a $375,000 difference that can make or break a deal.

For permanent loans, lenders weight the income approach heavily but still require the sales comparison approach as a reasonableness check. If the income approach indicates $6 million but the best comps suggest $4.5 million, the lender will investigate the discrepancy and likely lean toward the lower figure.

Borrower preparation makes a measurable difference. Before ordering an appraisal, compile your own comp package with recent sales that support your expected value. Share this with the appraiser (through your lender, if required) to ensure relevant transactions are not overlooked. Include any private sales or off-market deals that may not appear in standard databases.

What Are Common Mistakes in Comparable Sales Analysis?

Even experienced analysts make errors that compromise the reliability of their comp analysis. Recognizing these pitfalls helps you evaluate whether a valuation is well-supported or potentially flawed.

Using too few comps limits the analysis and makes it vulnerable to outlier influence. While three comps represent the minimum standard, five or six provide a more robust indication of value. When only one or two comps are available, supplement the sales comparison approach with stronger reliance on the income or cost approach.

Ignoring market conditions adjustments is particularly problematic in rapidly changing markets. A comp that sold 18 months ago in a rising market may understate current value by 10% or more if no time adjustment is applied. Similarly, failing to adjust for market declines can result in overvaluation.

Comparing dissimilar property types introduces fundamental errors that adjustments cannot adequately correct. A medical office building has different utility, tenant improvement costs, and investor demand than a general office building, even when they share the same submarket and vintage.

Overlooking non-realty components inflates the apparent sale price. Some transactions include personal property, business value (going-concern), or excess land that must be separated from the real estate value. A hotel sale, for example, often includes furniture, fixtures, equipment, and brand value that are not part of the real property.

Relying solely on asking prices rather than closed sale prices introduces upward bias. Listing prices reflect seller aspirations, not market reality. The gap between asking and closing prices varies by market and property type but typically ranges from 5% to 15%.

What Steps Should You Follow to Complete a Comparable Sales Analysis?

A systematic approach ensures thoroughness and consistency in your comp analysis. Follow this structured process whether you are evaluating a purchase, refinance, or portfolio review.

Step 1: Define the subject property. Document the physical characteristics, location attributes, income profile, and any unique features. This profile becomes your template for identifying relevant comps.

Step 2: Set search parameters. Establish criteria for property type, location radius, size range, sale date window, and transaction type. Start with tight parameters and widen them if the initial search yields fewer than five candidates.

Step 3: Gather raw data. Search multiple sources to build a comprehensive list of potential comps. Cross-reference databases to verify sale prices, dates, and property details. Public records serve as the ultimate verification for transaction prices.

Step 4: Screen and select comps. Evaluate each candidate against your criteria. Eliminate non-arm's-length transactions, properties with fundamentally different uses, and sales with unverifiable data. Select three to six comps that best represent the subject's market segment.

Step 5: Analyze and adjust. Calculate PSF, PPU (for multifamily), and cap rate for each comp. Apply adjustments for location, size, age, condition, market conditions, and lease terms. Document the rationale for each adjustment.

Step 6: Reconcile and conclude. Review the adjusted values. Identify the tightest cluster of adjusted prices and give greatest weight to the most comparable sales. Derive a final value indication supported by the data.

Ready to put your analysis into action? Contact our team to discuss financing options based on your property's comparable sales data.

What Are the Best Practices for Strengthening Your Comp Analysis?

Experienced analysts follow several best practices that distinguish institutional-quality work from superficial analysis.

Always verify data from multiple sources. A sale price reported in CoStar should be confirmed against county records. Square footage figures should be cross-checked between the assessor, building plans, and physical inspection. Discrepancies flag potential data quality issues.

Document your reasoning. For each comp, record why it was selected, what adjustments were applied, and why. This documentation supports your conclusion if challenged and helps you refine your approach over time.

Consider the buyer and seller motivations. Was the seller under financial distress? Was the buyer paying a strategic premium for an adjacent parcel? Transaction context affects price in ways that standard adjustments may not fully capture.

Track market trends continuously. Maintaining an ongoing database of sales in your target market lets you identify trends, spot anomalies, and build institutional knowledge over time.

Use technology appropriately. Mapping tools, statistical software, and data visualization platforms can enhance your analysis, but they cannot replace market knowledge and professional judgment.

Use our DSCR calculator to evaluate how comp-supported values translate into debt service coverage ratios that lenders require.

Frequently Asked Questions About Comparable Sales Analysis?

How many comps do I need for a reliable analysis? A minimum of three comparable sales is the industry standard, but five to six comps provide stronger support. Appraisers for federally regulated lenders must include at least three comps in most cases.

How recent should comparable sales be? Ideally, comps should be no older than 6 to 12 months. In slower markets with limited transaction volume, comps up to 24 months old may be acceptable with appropriate time adjustments applied.

What is the difference between gross and net adjustments? Gross adjustment is the total of all adjustments regardless of direction (positive or negative). Net adjustment is the sum after positive and negative adjustments offset each other. Most appraisal standards recommend net adjustments below 15% and gross adjustments below 25% of the comp's sale price.

Can I use listed properties as comps? No. Listed properties reflect asking prices, not market value. Only closed transactions with verified sale prices should be used as comps. Active listings can provide supplementary market context but should never replace closed sales in a formal analysis.

How do I handle comps in a different submarket? Apply a location adjustment based on measurable differences in market rents, vacancy rates, demographic profiles, and access to transportation or amenities. The farther the comp is from the subject's submarket, the larger and less reliable the adjustment becomes.

What role do cap rates play in comparable sales analysis? Cap rates derived from comp sales serve as a bridge between the sales comparison and income approaches. If comps consistently trade at 6.5% to 7.0% cap rates, applying that range to the subject's net operating income provides an income-based value indication that should align with the PSF or PPU analysis.

Do online valuation tools replace professional comp analysis? No. Automated valuation models (AVMs) for commercial properties lack the nuanced adjustments, market knowledge, and data verification that professional analysis provides. AVMs may offer a rough starting point, but lenders require appraisals prepared by licensed professionals using verified comparable sales.

How does the commercial appraisal process incorporate comps? The appraisal report dedicates a full section to the sales comparison approach. The appraiser identifies comps, presents adjustment grids, explains the rationale for each adjustment, and reconciles the adjusted values into a final indication. This section typically represents 15 to 25 pages of a full narrative appraisal report.

Sources?

1. Appraisal Institute. The Appraisal of Real Estate, 15th Edition. Chicago: Appraisal Institute, 2020.
2. CoStar Group. "U.S. Commercial Real Estate Transaction Data and Market Analytics." Accessed 2025.
3. MSCI Real Capital Analytics. "Global Capital Trends: Commercial Property Sales Data." Published 2024.
4. Uniform Standards of Professional Appraisal Practice (USPAP), 2024-2025 Edition. The Appraisal Foundation.
5. Federal Deposit Insurance Corporation. "Interagency Appraisal and Evaluation Guidelines." December 2010.