4 Steps in the Sales Approach to Value

 

 

The Sales Comparison Approach

 

This approach recognizes that a typical buyer will compare asking prices and seek to purchase the property that meets his or her wants and needs for the lowest cost. In developing the sales comparison approach, the appraiser attempts to interpret and measure the actions of parties involved in the marketplace, including buyers, sellers, and investors.

 

Data are collected on recent sales of properties similar to the subject being valued, called comparables. Only SOLD properties may be used in an appraisal and determination of a property's value. Sources of comparable data include real estate publications, public records, buyers, sellers, real estate brokers and/or agents, appraisers, and so on. Important details of each comparable sale are described in the appraisal report. Since comparable sales aren't identical to the subject property, adjustments may be made for date of sale, location, style, amenities, square footage, site size, etc. The main idea is to simulate the price that would have been paid if each comparable sale were identical to the subject property. If the comparable is superior to the subject in a factor or aspect, then a downward adjustment is needed for that factor. Likewise, if the comparable is inferior to the subject in an aspect, then an upward adjustment for that aspect is needed. From the analysis of the group of adjusted sales prices of the comparable sales, the appraiser selects an indicator of value that is representative of the subject property.

 

 

Steps in the sales comparison approach

 

1. Research the market to obtain information pertaining to sales, and pending sales that are similar to the subject property.

 

2. Investigate the market data to determine whether they are factually correct and accurate.

 

3. Determine relevant units of comparison (e.g., sales price per square foot), and develop a comparative analysis for each.

 

4. Compare the subject and comparable sales according to the elements of comparison and adjust as appropriate.

 

5. Reconcile the multiple value indications that result from the adjustment of the comparable sales into a single value indication.