1. The Sales Comparison Approach

2. The Sales Comparison Approach
The historical approach to value: The value of the subject property is derived by comparing it with prior sales of similar properties
This analytical tool can be difficult to prepare but is easily understood
Common sales comparison grids will be introduced and explored
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3. Relation to Appraisal Principles
Supply and demand
Substitution
Balance
Externalities
Market analysis and highest and best use
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4. Applicability and Limitations
The sales comparison approach is nearly always applicable.
Sales comparison is valid even when buyers are paying for income potential.
Prior sales of the subject property are also evidence of value.
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5. Procedure
Research the market for sales, listings, offerings, and pending sales.
Verify information per the scope of work.
Select relevant units of comparison.
Look for relevant differences in the comparable properties and make adjustments.
Reconcile the value conclusions into a single point opinion or range.
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6. Procedure, continued Researching transactional data MLS data
To keep bad data from affecting the analysis, using more data is better than using less.
Verifying transactional data
Selecting units of comparison
Price per square foot of gross living area
Price per square foot of gross building area
Price per living unit (apartments or condos)
Price per room
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7. Comparable Land Sales
These sales do not seem comparable when the gross sale prices are compared. When a unit of comparison (price per acre) is applied, the data shows consistency.
Subject
Sale 1
Sale 2
Sale 3
Sale 4
Sale 5
Sale price —
$1,000,000
$750,000
$550,000
$250,000
$75,000
No. of acres
120
175
125 85 35 8
Price per acre
$5,714
$6,000
$6,470
$7,142
$9,375
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8. Procedure, continued Analyzing and adjusting comparable sales
Identification and measurement of adjustments
Elements of comparison
Sequence of adjustments
Suggested order of transactional adjustments
Real property rights conveyed
Financing terms
Conditions of sale
Expenditures made immediately after purchase
Market conditions (time)
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9. Adjustments to Comparable Sales Prices
Subject
Comparable 1
Comparable 2
Address
123 Mark Street
211 W. 30th Street
211 W. 25th Street
Sale price
Rights transferred
fee simple
0.00
Subtotal
Financing
cash to seller
Conditions of sale
arm’s-length
Post-purchase repairs
none
Market conditions
current
6 months
0.03
15 months
0.08
Current, cash-equivalent price
per sq. ft. of land
9.93
10.05
Location
West Side
Land size (sq. ft.)
35,000
44,000
59,000
Building design
one story/avg.
Construction quality
masonry/avg.
wood frame
0.10
Improvement age 21 19
-0.20 12
-0.90
Improvement condition
fair
superior
equal
Above-ground building area
3,500
2,900
0.30
2,000
0.75
Basement area (sq. ft.)
Functional obsolescence
typical only
Other
Net adjustment
-0.15
Indicated value per sq. ft. of
land including building
9.90
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10. Sales Comparison Grid Chapter 18 Subject Comparable 1 Comparable 2
1597 N. Cathy
3579 Eunice
1593 N. Jeanine
3571 E. Gina
Street
Avenue
Sale price
$500,000
$550,000
$400,000
Rights transferred
fee simple $0
Subtotal
Financing
cash to seller
contract
− $50,000
$450,000
Conditions of sale
arm’s-length
Post-purchase repairs
none needed
minor repairs
$40,000
$440,000
Market conditions
now
2 mos.
0.30%
9 mos.
1.30%
3 mos.
0.50%
Current, cash-equivalent price
$451,350
$557,150
$442,200
Location
$100,000
$165,000
− $65,000
$225,000
− $125,000
$78,000
$22,000
Adjusted price
$386,350
$432,150
$464,200
Building design
one story/avg.
Const. quality
brick/avg.
steel/avg.
steel/inferior
$23,210 (5.0%)
Improvement age 8 12
$30,908 (8.0%) 9
$8,643 (2.0%) 5
- $27,852 (- 6.0%)
Improvement condition
average
equal
Abv. gd. bldg. area
5,086
8,000
- $22,408 (- 5.8%)
12,000
- $59,637 (- 13.8%)
10,000
- $45,492 (- 9.8%)
Finished office
25.00%
13.95%
$23,768 (5.5%)
Freezer/cooler
Basement sq. ft.
Functional utility
Other
none
Net adjustment
$8,500 (+ 2.2%)
- $27,226 (− 6.3%)
- $50,134 (− 10.8%)
$394,850
$404,924
$414,066
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11. Procedure, continued
Reconciling value indications in the sales comparison approach
The adjusted price (adjust the sales price of the comp so it is a better indication of what the SS will sell for) is the indicated value of the subject.
The number of comparables required depends on the assignment conditions.
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