Keyword: Sales Comparison Approach

The sales comparison approach is an approach that is almost used in all appraisals. It is one of the three major groupings of valuation methods. The definition that Rattermann gives on page 93 is, “this approach is based on the idea that if you paid a certain amount for a property that is similar to the subject property, you would pay it again for the subject property”. In addition, this approach deals with buying an existing property.

One view of the market value, for one’s subject site, can be supported by the analysis of past sales with similar site features plus or minus any adjustments for differences. The example in the book states, “If the sellers of that property were able to achieve a sale price of $X, then this property ought to be worth $X plus/minus the applicable adjustments.” One example I came up with to compare a homes value to another one that just sold is:

Home X – 3 bedrooms, 2 baths, no garage.

Home Y was sold for $200,000. It has 3 bedrooms, 2 baths, 2-car garage. Garage value is $5,000.

For the sales comparison approach, you would have to subtract the garage value of $5,000, to get the comparable value of $195,000 for Home Y.

This is a simple example but makes the sales comparison model easy to understand the basics.

According to Rattermann, there is a procedure to finding the sales comparison approach. In the first step, you want to gather and data on current listings, pending sales, and recent sales that relate well to your property. Next, you should verify any of the information you gathered. Accurate data and accurate market considerations of similar subjects are a key to comparing sales. The third step considers selecting the most relevant units of comparison in the market and developing an analysis for each unit. Some examples of units of comparison are prices per acre, square foot, and front foot. The next step is adjusting the sales price for each of the comparable properties. This step is used to reproduce hoe each of the comparable properties differentiate from your subject property. In the fifth and final step you want to bring together the various value indications produced from the analysis of comparable sales to a value bracket or single value indication. The comparable sales will give you an indication of sales, but comparable listings will show what the competition is and what the subject can and cannot sell for.

The sales comparison approach is the best understood of the three approaches to value. This approach is best suited for residential and investment type properties that sell often on the open market and where there are sufficient sales to use this approach.

Rattermann, M. R. (2009). The Student Handbook to The Appraisal of Real Estate. Chicago, IL: Appraisal Institute.