Presentation on theme: "Sales Comparison Approach Wayne Foss, MBA, MAI, CRE Foss Consulting Group"— Presentation transcript:
Sales Comparison Approach Wayne Foss, MBA, MAI, CRE Foss Consulting Group
2 Sales Comparison Approach Premise: –The market value of a property is directly related to sales prices of comparable competitive properties.
3 Sales Comparison Approach Principles involved include –Substitution –Contribution –Anticipation –Supply and Demand
4 Sales Comparison Approach The appraiser may include a variety of additional market information including: Offers to purchase Options Listings Pending Sales Interviews of market participants
5 Sales Comparison Approach Greatest emphasis is on actual closed sales because ….. –There was a completed transaction involving a meeting of the minds between buyer and seller –Intent was completed; demand backed-up by purchasing power –But additional information should be considered also.....
6 Sales Comparison Approach Information about and recent subject sale, listing, offers, and options should be analyzed. Competitive listings and offers may indicate an upper-limit to the subject market value estimate.
7 Sales Comparison Approach The Comparable Properties should have the same Highest and Best Use as the appraised property. –Potential use –Potential user –Potential buyer –Timing for use
8 Sales Comparison Approach This approach has several advantages: Considers value as present worth of future benefits automatically reflected in each market price. Simple, direct; easy concept and technique for most readers to understand. Continued….
9 Sales Comparison Approach Values as-if… can be considered Best when appraiser has highly similar sales data and The comparisons are appropriately analyzed
10 The Six Steps An Overview; then the details 1. Know the Subject and the Appraisal Problem to be solved 2. Market Research find and confirm comparable sales of similar buyer appeal, use, potential. 3. Verify and confirm market information –Buyer, Seller, broker; someone with firsthand knowledge of the transaction
11 The Six Steps 4. Select relevant Units-of- Comparison 5. Compare market observations to the appraised subject property 6. Reconcile the various value indications to a final value estimate by this approach
12 The First Step 1. Know the Subject and the Appraisal Problem to be solved –Understand the subject real estate and real property completely as well as highest and best use –Understand the appraisal problem, definition of market value used, purpose and date of the appraisal
13 The Second Step 2. Market Research find and confirm recent sales of comparable properties –Similar and competing; –Same highest and best use –Similar location, age, size, use, features –Recent transaction, similar market conditions –obtain sufficient information quantity, and quality virtually as much information as known about the subject itself!
14 The Third Step 3. Verify and confirm market information –Macro: trends, level of activity, outlook –Micro: for each comparable sale or observation…. Price, and financing terms (both are critical) date of sale / contract, and date of closing real estate and real property rights involved condition property characteristics anything impacting price and value (income, leases, rights transferred, use, restrictions, amenities, etc.)
15 The Fourth Step 4. Select relevant Units-of-Comparison –Price per sq. ft., sq. meter, hectare, cubic foot, cubic meter, etc. These relate to productivity market participant communication and standards –Some are physical ($/SF, $/Room, $/Unit) –Some are economic (GIM, R O, R E )
16 The Fifth Step 5. Compare market observations to the subject –Normally use an adjustment grid or table –Considering each point of significant difference between subject and comparable, adjust the sales price of each comparable property If the subject is SUPERIOR, adjust UP If the subject is INFERIOR, adjust DOWN
17 The Fifth Step, cont… Comparison adjustments continued... –The key is to properly consider all points of significant difference between each comparable property and the subject, applying appropriate adjustment to comparables sale price. –The result is an adjusted price indicated by each comparable; then together they provide several value indications for the appraised property.
18 The Sixth Step 6. Reconcile the various value indications to a final value estimate by this approach –The conclusion is a result of applied judgement Which comparable sales or indications are most similar to the appraised property - and most recent. –The conclusion is not a simple averaging of the adjusted sales prices –The indications are a foundation for judgement in making the analysis and value conclusion.
19 Steps in the Sales Comparison Approach 1. Know the Subject and the Appraisal Problem to be Solved 2. Market Research find comparable sales 3. Verify and confirm market information –Macro: trends, level of activity, outlook –Micro: for each comparable sale or observation 4. Select relevant Units-of Comparison 5. Compare market observations to subject 6. Reconcile the various value indications to a final value estimate by this approach
20 Thoughts and Comments Essential to know all about the subject; features, condition, uses, location, optimum use, alternative uses. Analysis of subject and market is: Physical Social, Demographic Legal, Governmental Economic, Financial
21 Thoughts and Comments, cont... Market research must be thorough –Know macro market, trends, overall outlook –Know micro market, about each sale used: Confirm data personally to know motivations, condition of the property, financing, and all factors impacting price and value. Look at each comparable; talk to buyer, seller, or agent Adjustments may be $ or %, and may be to total price or unit-of-comparison.
22 So thats the Sales Comparison Approach This approach is often the most significant if used correctly! Wayne Foss, MBA, MAI, CRE, Fullerton, CA USA Phone: (714) Fax: (714)