Sales Comparison Approach

1
Sales Comparison Approach

• Analysis of Market Data

Wayne Foss, MBA, MAI, CRE Foss Consulting
Group Email wfoss_at_fossconsult.com
2
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

3
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

4
Sales Comparison Adjustments

• Key The underlying idea is to adjust the sales
  price of the comparable answering the question
• --What would the comparable sale property have
  sold for IF it had the characteristic(s) of the
  subject? That best indicates subject value.

5
Making Comparison Adjustments

• Remember, adjustments are made to the price of
  the comparable
• adjust UP when the subject is SUPERIOR
• adjust DOWN when the subject is INFERIOR to the
  comparable property

6
Sequence of Adjustments

• General Sequence of Adjustments
• First
• Property Rights
• Financing (cash equivalency)
• Conditions of Sale (motivation/concessions)
• Market Conditions (time)

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Sequence of Adjustments, cont

• General Sequence of Adjustments
• Second
• Location
• Physical Characteristics
• Other Characteristics, e.g., zoning, access,
  view, income producing characteristics

8
Paired Data Analysis

• Allows the analyst to derive the contributory
  value of a component directly from market data
• Compare two sales that are otherwise similar
  except for one characteristic
• Examples of differences would be
• Date of Sale (market conditions)
• Size (living area)
• Condition
• Etc.

9
Market Conditions

• Research Sales that
• Have sold twice (or more) in the recent past
• Multiple sales that are otherwise similar other
  than date of sale
• For Example

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Physical Characteristics

• Analysis of Contributory Value of Expansion Space
  (Size)

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Physical Characteristics

• Analysis of Contributory Value of an Amenity
  (Condition, Patio Cover, View, etc.)

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Sales Comparison Approach - Conclusion
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Limitations to Paired Sales Analysis

• Perfect sets of data are rarely found
• Statistical Analysis is not appropriate for small
  sample sizes generally available to an individual
  assignment
• Judgment is required

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So Thats Abstraction of Adjustments
Are there any Questions?
Wayne Foss, MBA, MAI, CRE, Fullerton, CA USA
Email wfoss_at_fossconsult.com