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Comparables refer to a form of valuation of similar assets in which the value of a recently traded asset determined the value of another similar asset. Comparables valuation is a strategy used in the sale of assets and the appraisal of properties in the real estate. When used in the real estate, comparables entails making a list of properties with similar features and determining the value of the properties by the value of a recently sold one.
Similarly, if an asset owner is looking to sell an asset, a list of recently sold similar assets can be compared to determine the value of the asset.
A Little More on What are Comparables
The idea behind the use of comparables is that the value of a recently sold asset or property reflects the current market value of other similar assets. Essentially, the value of a recently sold asset indicates the price at which similar assets will be sold. Comparables are essential when doing asset appraisal or home appraisal. A real estate agent can easily determine the value of a home by checking or comparing a previously sold home which is similar in features and structures.
Example of Comparables Valuation
The illustration below is helpful for a proper understanding of comparables;
Brandy is a real estate agent and needs to sell a home on behalf of an actual homeowner, to avoid shortchanging himself or selling the home below the current market price, Brandy checks a list of similar homes that were sold recently and compares their prices to determine the value of the home to be sold.
Also, pate is an asset owner and is in need of money, he needs to sell his holdings to raise funds. Pate then compares all similar assets so as to determine the value of his assets. These are instances of comparables valuation.