Lesson 1: The Sales Comparison Approach

Sales Comparison Approach Data: Each appraisal approach relies on something to help determine a property's value. What does the sales comparison approach rely upon?

Value of similar properties in the market

Finding Comparables : What are some of the factors an appraiser needs to consider when finding properties comparable to the subject property? Select "yes" for factors that the appraiser will consider, and "no" for factors that aren't relevant. Physical characteristics of the property

Yes

Finding Comparables : What are some of the factors an appraiser needs to consider when finding properties comparable to the subject property? Select "yes" for factors that the appraiser will consider, and "no" for factors that aren't relevant. Property interest and rights

Yes

Adjustment Practice : Let's put some numbers on the features that an appraiser would adjust for in the sales comparison approach. For this example, the subject property has four bedrooms, two-and-a-half bathrooms, a two-car garage, a finished basement, but no pool. The comparable has four bedrooms, two-and-a-half bathrooms, a two-car garage, unfinished basement, and a pool. The comparable sold for $350,000 last month. Assume that a pool is valued $3,000 and a finished basement is valued at $15,000. Using these values, what's the market value of the subject property?

(($350,000 + $15,000) - $3,000) = $362,000

Steps in the Process : You got it! After analyzing the subject property, the appraiser will identify some comparable properties that have been recently sold. What's next?

Compare the comparables to the subject property and make adjustments to the sales price of the comparables where they are different.

Element Priority : To be able to make valid computations of adjustments, the elements of comparison must be applied in a particular order. Which element must be applied first?

Financing terms and cash equivalency

Steps in the Process : Yes! An appraiser will analyze the subject property first when using the sales comparison approach. What's next?

Identify comparable properties that have been recently sold.

Steps in the Process : You're probably figuring out that the appraiser's job involves a lot of systematic thinking and process-following. What's the first step in the overall process that the appraiser uses with the sales comparison approach?

Analyze the subject property to identify its characteristics, particularly those that are in demand in the current market.

Finding Comparables : What are some of the factors an appraiser needs to consider when finding properties comparable to the subject property? Select "yes" for factors that the appraiser will consider, and "no" for factors that aren't relevant. Seller/buyer demographics

No

Value Principle : The three approaches are based on certain principles of value. On which value principle is the sales comparison approach based?

Substitution