In real estate, “comps” (short for comparables) are one of the most widely used tools to determine a property’s value. A comp is essentially a recent sale of a similar asset in a similar market, used as a benchmark. Real estate brokers, investors, lenders, and appraisers rely heavily on comps because they provide a quick way to estimate fair market value without building complex models.
But comps can also be misleading, especially in periods of low transaction volume. If only a handful of deals are closing, those transactions may not represent the true underlying market. Instead, they might reflect the financial position of the seller, the unique profile of the buyer, or temporary supply-demand imbalances.
This distortion becomes especially dangerous when comps drive broader valuation assumptions. For example, in the hotel sector, distressed sales could pull down perceived values across entire portfolios. In housing, a small number of wealthy buyers can inflate prices for all.
With that in mind, let’s turn to the first case study: the ongoing challenges facing Hotel REITs and the Braemar Hotels & Resorts sale process.
Case Study 1 – Hotel REITs & the Braemar Sale
Braemar’s Strategic Decision
In 2025, Braemar Hotels & Resorts (BHR) announced it was pursuing a potential sale. This move came after years of shareholder activism and chronic underperformance in the public markets. What made headlines was the $480 million termination fee tied to Braemar’s advisory agreement with Ashford Inc. That fee alone was nearly equal to Braemar’s market cap, creating a substantial drag on shareholder value.
Debt and Valuation Disconnects
Braemar’s financial picture illustrates the challenge of using comps in hotel real estate. While the company owned high-end luxury resorts that could command strong private-market interest, it also carried significant debt. In public markets, Hotel REITs are valued largely on cash flow multiples (EBITDA, RevPAR, NOI). But in private markets, buyers often look at real estate per-key valuations and replacement cost.
For Braemar, this disconnect created a strange dynamic. Depending on the sale price, per-key valuations ranged between $707,000 and $807,000. At first glance, those numbers look impressive—comparable to Blackstone’s 2015 purchase of Strategic Hotels. But the real story is in the debt load: even a $4/share swing in equity value only moved per-key valuations by about $100,000.
Implications for Investors
For investors, the Braemar case shows why comps can be misleading. A hotel portfolio may appear undervalued compared to replacement cost, but if debt service, termination fees, and capital expenditures are layered in, the picture changes dramatically. This is why many Hotel real estate brokers and investors are cautious, understanding that comps alone may not accurately reflect market conditions.
This is why many Hotel REITs continue to trade at deep discounts to NAV (net asset value). In thinly traded markets, a single deal can anchor comps unrealistically high or low, but that doesn’t mean the broader sector reflects those values.
Case Study 2 – Housing Market Dynamics
The Decline in Transaction Volume
The U.S. housing market is experiencing a fundamental shift. Existing home sales have fallen sharply in recent years due to high mortgage rates, limited inventory, and demographic changes. At the same time, the median homebuyer age has risen to 56, signaling that older, wealthier buyers dominate today’s transactions.
Distorted Pricing Signals
Here’s where comps get tricky. With fewer homes selling, the average sales price increasingly reflects the purchases of cash-rich buyers who can afford premium properties in desirable neighborhoods. As a result, for the first time in history, existing homes are being priced higher than new homes. This is counterintuitive—new construction usually trades at a premium due to modern features and warranties.
But comps drawn from a handful of expensive existing home sales are inflating the broader data. Builders, needing to move inventory, are discounting new homes. Meanwhile, comps from older homes in prime locations are skewing appraisals for the entire market.
Equity vs. Debt: A Misleading Cushion
Data also shows that home equity now outweighs mortgage debt by 2.5x. On paper, this looks like a buffer against price declines. But it’s important to remember that equity is marked-to-market based on a small slice of transactions. If comps are distorted, then aggregate equity estimates may be overstated.
This echoes the hotel REIT issue: a few outlier deals can distort the entire valuation framework.
Shared Themes Across Sectors
Despite their differences, both hotels and housing show the same pattern:
- Low Transaction Volume Skews Perception
- In hotels, a single luxury portfolio trade can set per-key expectations.
- In housing, a few high-income buyers drive national median home prices.
- Risks for Operators and Investors
- Investors relying on distorted comps may overpay.
- Operators who assume inflated valuations may mismanage debt or delay capital expenditures.
- Replacement Cost vs. Market Price
- Many hotel portfolios now trade below replacement cost, yet buyers hesitate because comps suggest higher pricing.
- In housing, limited supply means homes sell at inflated premiums, even if broader affordability doesn’t support it.
Looking Ahead
Impact of Interest Rates
If interest rates ease in 2026, transaction volume could rise in both sectors. For hotels, that means more portfolio sales, which would provide a more reliable comp set. For housing, lower mortgage rates could bring younger buyers back into the market, diversifying the pool of comps.
Normalizing Valuations
The solution to distorted comps is simple: more deal flow. With a larger number of transactions, the outliers matter less. This creates a healthier, more accurate reflection of market value.
Key Takeaways for Investors and Brokers
- Use comps, but don’t stop there.
- Supplement with fundamentals: cash flow, debt obligations, replacement cost, demand drivers.
- Recognize when comps reflect a thin market rather than true equilibrium.
Conclusion
Comps remain a cornerstone of real estate valuation, but in low-volume markets, they can be dangerously misleading. The case of Braemar Hotels & Resorts shows how debt and fees can make public vs. private comps diverge. The housing market shows how demographic shifts and limited inventory can inflate comps far beyond sustainable levels.
For investors, real estate brokers, and analysts, the lesson is clear: don’t rely on comps alone. Look deeper into fundamentals—cash flows, debt coverage, replacement cost, and long-term demand. Otherwise, distorted comps could lead to costly misjudgments.
If you’d like deeper insights on how to interpret comps and navigate today’s challenging real estate markets, contact us today. Our team can provide tailored analysis and strategies to help you make smarter investment decisions.