Introduction to the Sales Comparison Approach
The Sales Comparison Approach (SCA) is a fundamental method used in real estate appraisal to determine the value of a property by comparing it to similar properties that have recently sold. These similar properties are known as ‘comparables’ or ‘comps.’
How the Sales Comparison Approach Works
- Identify Comparable Properties: Find recently sold properties that are similar in location, size, condition, and features to the subject property.
- Compare and Adjust: Analyze the sale prices of these comparables and adjust for differences such as size, features, and market conditions.
- Estimate Value: Use the adjusted figures of the comparables to estimate the value of the subject property.
Detailed Example
Let’s take a closer look at how the Sales Comparison Approach is applied:
The subject property is a cozy 3-bedroom, 2-bath house. The appraiser identifies two recently sold comparable properties.
Table: Sales Comparison Approach
| Characteristic | Comparable #1 | Comparable #2 |
|---|---|---|
| Sale price | $170,500 | $167,000 |
| Date of sale | Last week | 3 months ago (+$1,000) |
| Bedrooms | 3 bedrooms | 3 bedrooms |
| Baths | 2½ baths (–$2,500) | 2 baths |
| Adjusted Price | $168,000 | $168,000 |
After making the necessary adjustments for date of sale and number of bathrooms, both comparables have an adjusted price of $168,000. Consequently, the appraiser concludes that the subject property is valued at $168,000.
Key Considerations and Adjustments
- Sale Timing: Large enough time gaps between the sale dates of comparables and the subject assessment date require adjustments. Market conditions can affect prices over time.
- Property Features: Differences in the number of rooms, amenities, and conditions can significantly impact property values. Estimated monetary adjustments are made to account for these dissimilarities.
- Location: Variations in neighborhoods or proximities to essential amenities can necessitate adjustments.
Frequently Asked Questions (FAQs)
What is the Sales Comparison Approach?
The Sales Comparison Approach is a method used to appraise property values by comparing the subject property to similar properties recently sold, adjusting for differences such as size, location and market conditions.
How do appraisers find comparables?
Appraisers utilize MLS (Multiple Listing Service) databases, public records, and other resources to locate recent sales of properties similar to the subject property.
Why are adjustments necessary in the Sales Comparison Approach?
Adjustments are necessary to account for the differences between the subject property and the comparables to ensure an accurate and fair valuation.
What factors influence the value estimation?
Factors include the condition of the property, market trends, location, square footage, number of rooms, and any unique features or amenities.
Related Terms: Cost Approach, Income Approach, Market Analysis, Comparable Sales.
