What is a comparison grid analysis?
Dave Domres CPM® CCIM® IREM® Faculty Member
A comp grid or comparison grid analysis is a useful tool for you as a property manager to maximize income to the property. IT compares the subject property to some comparables in categories which have the greatest effect on tenant marketability. We make adjustments to those categories to understand what the current market rent should be for the subject property. The goal is understanding what the current market rent is and needs to be for the subject property.
Why is a comparison grid analysis valuable?
It helps you fulfill and maximize your role in creating value for the owner. That’s a direct result of making sure the property is achieving the maximum rents in the marketplace. A comp grid is a tool that gives you a systematic approach and a consistent approach to determining fair market rent by looking at each property on an apples-to-apples, oranges-to-oranges basis.
How do you define comparable properties?
There are many factors. Some of those factors can include: age, location, type of construction, features, amenities, is the property professionally managed, can be one of those huge components.
How many categories do you need to compare?
Just as we try to find as many comparable properties to try and understand, we need to define those categories which have the greatest impact. If there are categories which have a nominal affect, my suggestion to the person doing the comp grid would be perhaps they aren’t as important, they’re a lower priority. Really focus on those items that would have the greatest affect to you maximizing income to the owner.
What is are some of the challenges of using a comparison grid analysis?
First, it is a subjective process. Many people are looking for a cookbook. Is it landscaping? Is that four dollars? The reality of it is, it is your professional experience of the marketplace. You need to look at each one of those features and based upon your leasing technique and the properties you have, you have to decide what value will be assigned to each one of the categories to make it truly comparable to your subject property. That is what derives the best estimate of current market rent for your property.
Can you use the comparison grid analysis to understand propsect preferences?
Absolutely. You are trying to define categories, features and amenities for the property that positively sell your property over the competitors. If there is something else that you identify at another property, and say for example, you give that a higher rating, you give that you’re poor and they’re excellent, or very good, there’s a large dollar factor associated with that adjustment. That would tell you and prove to you that my landscaping needs improvement, my parking rates need to be adjusted. Those types of facts and figures that you can glean out of the competitive analysis, can help you define what your marketing and leasing efforts are going to be.
How often should you conduct a comparison grid analysis?
Unfortunately, the response is that you need to do it as often as you believe you need to in the current market. Over the past several years markets have changed very quickly and very dramatically. Every property owner has different criteria under which you need to establish rents. If their satisfied with only looking at the rent structure once a year, then perhaps you do a competitive rent analysis once a year. If there are changes in the marketplace such as a downturn in the economy, or a change in the location around you, those are all factors that will drive how often you do a competitive rent analysis. Whether or not you readjust the rents, you always need to know that the current rent is.