Basic Appraisal Procedures-Chapter 7-8 -Sales Comparison Approach

The sales comparison approach is defined as:

"The process of deriving a value indication for the subject property by comparing market information for similar properties with the property being appraised, identifying appropriate units of comparison, and making qualitative comparisons with or quantitative adjustments to the sale prices (or unit prices, as appropriate) of the comparable properties based on relevant, market-derived elements of comparison."

In applying the sales comparison approach, the appraiser should employ a systematic approach:

1. Research the market 2. Verify the information 3. Select relevant units of comparison 4. Identify differences and make adjustments 5. Reconcile the value indications

sales comparison approach:

Notice that the process starts with the comparable, not the subject We NEVER adjust the subject property. We make adjustments to a comparable sale to show what the comparable would have sold for if it were just like the subject.

Relative comparison analysis is defined as:

"A qualitative technique for analyzing comparable sales; used to determine whether the characteristics of a comparable property are inferior, superior, or similar to those of the subject property."

Paired data analysis is defined as

"A quantitative technique used to identify and measure adjustments to the sale prices or rents of comparable properties; to apply this technique, sales or rental data on nearly identical properties are analyzed to isolate a single characteristic's effect on value or rent. Often referred to as paired sales analysis."

The principle of substitution is defined as

"The appraisal principle that states that when several similar or commensurate commodities, goods, or services are available, the one with the lowest price will attract the greatest demand and widest distribution. This is the primary principle upon which the cost and sales comparison approaches are based."

The principle of contribution is defined as

"The concept that the value of a particular component is measured in terms of its contribution to the value of the whole property, or as the amount that its absence would detract from the value of the whole".

Comparative analysis is defined as

"The process by which a value indication is derived in the sales comparison approach. Comparative analysis may employ quantitative or qualitative techniques, either separately or in combination."

Ranking analysis is defined as

An ordinal technique for analyzing data, commonly used in the analysis of comparable sales; a variant of relative comparison analysis in which comparable sales are arrayed in descending or ascending order of desirability and each is analyzed to determine its comparability to the subject property."

The sales comparison approach is the most commonly used approach for

appraising residential property This is because the approach looks at the value of houses bought as homes, not as rentals.

income-producing properties are generally appraised with:

the income capitalization approach as well as the sales comparison approach, if applicable The cost approach may also be applied.

The traditional minimum number of comparable sales:

three

When choosing comparables, the appraiser looks for properties that are as similar as possible to the subject in all aspects. This includes analyzing diverse factors, such as:

• Sales or financing concessions • Market conditions when sale occurred • Location • Property rights appraised • Site characteristics • Physical characteristics of structures • Quality • Functional attributes • Amenities • Motivations of sellers and buyers