Sales Comparison Approach

The sales comparison approach is a technique used in real estate valuation to estimate the value of a property by comparing it to similar properties that have recently sold. It is commonly used in residential and commercial property valuation.

Key Principles:

• Identification of Comparable Properties: Select properties that are similar in size, location, age, condition, and other relevant factors to the subject property.
• Analysis of Comparable Properties: Compare the comparable properties to the subject property, considering factors such as square footage, location, condition, and price per square foot.
• Development of Sales Comparison Ratios: Calculate the sales comparison ratios by dividing the sales prices of the comparable properties by their respective square footage.
• Application of Sales Comparison Ratios: Apply the sales comparison ratios to the subject property’s square footage to estimate its value.
• Adjustments: Make adjustments to the estimated value based on any unique factors or market conditions that may influence the value of the subject property.

Steps:

1. Gather Data: Collect information about the subject property, comparable properties, and the market.
2. Identify Comparable Properties: Select comparable properties based on size, location, condition, and other factors.
3. Analyze Comparable Properties: Compare the comparable properties to the subject property, noting similarities and differences.
4. Develop Sales Comparison Ratios: Calculate the sales comparison ratios by dividing the sales prices of the comparable properties by their respective square footage.
5. Apply Sales Comparison Ratios: Apply the sales comparison ratios to the subject property’s square footage to estimate its value.
6. Adjust for Unique Factors: Make adjustments to the estimated value based on unique factors or market conditions.
7. Final Valuation: Determine the final value of the subject property based on the adjusted value and any other relevant factors.

Advantages:

• Market-Based: Reflects actual market conditions and provides a direct comparison to similar properties.
• Data-Driven: Uses objective data to derive value estimates.
• Comparable Properties: Uses properties with similar characteristics to the subject property.

Disadvantages:

• Limited Sample: May not represent a wide enough sample of comparable properties.
• Subjective Adjustments: Can be influenced by subjective adjustments.
• Market Fluctuations: Can be impacted by market fluctuations, affecting the accuracy of estimates.