The Sales Comparison Approach

When valuing real estate, there are many methods at your disposal to derive a value for the property. One commonly used method is the sales comparison approach.

The sales comparison approach utilizes recent sales of the most comparable properties in the area to derive a value for the subject property. The best comp available is the one that is across the street from the subject and sold yesterday. Once you have gathered three to five comparable sales, you can begin reconciling them to match the subject more closely.

This process is a simple add and subtract process that adjusts the comparable's prices based on the assets or qualities that they differ from when looking at the subject property. For example, if the only difference between a comp and the subject is square footage, you can calculate the square footage difference and add or subtract from the comp sale price if the subject has more or less square footage.

This method of value determination is a widely used practice that works best on residential properties. The sales comparison method is not typically used for properties that are unimproved (don't have land on them).


The easiest way to develop a sales comparison value is to construct a grid as shown below. It is adapted from the virtual appraisal website.


Sales Comparison Grid
Subject Sale #1 Sale #2 Sale #3
Sales Price
Distance
Date
Concessions
Land Area
View
Location
Quality
Type
Condition
Room Count
GLA
Basement
Bsmt Finish
Utility
Parking
Porches, etc
Heat/AC
Other
Total Adjustments
Indicated Price

The appraiser would simply fill out the information for the column on the left for the subject and each of the three comparables, then the reconciliation can begin.