The Sales Comparison Approach

The Sales Comparison Approach The historical approach to value: The value of the subject property is derived by comparing it with prior sales of similar properties This analytical tool can be difficult to prepare but is easily understood Common sales comparison grids will be introduced and explored Chapter 18

Relation to Appraisal Principles Supply and demand Substitution Balance Externalities Market analysis and highest and best use Chapter 18

Applicability and Limitations The sales comparison approach is nearly always applicable. Sales comparison is valid even when buyers are paying for income potential. Prior sales of the subject property are also evidence of value. Chapter 18

Procedure Research the market for sales, listings, offerings, and pending sales. Verify information per the scope of work. Select relevant units of comparison. Look for relevant differences in the comparable properties and make adjustments. Reconcile the value conclusions into a single point opinion or range. Chapter 18

Procedure, continued Researching transactional data MLS data To keep bad data from affecting the analysis, using more data is better than using less. Verifying transactional data Selecting units of comparison Price per square foot of gross living area Price per square foot of gross building area Price per living unit (apartments or condos) Price per room Chapter 18

Comparable Land Sales These sales do not seem comparable when the gross sale prices are compared. When a unit of comparison (price per acre) is applied, the data shows consistency. Subject Sale 1 Sale 2 Sale 3 Sale 4 Sale 5 Sale price — $1,000,000 $750,000 $550,000 $250,000 $75,000 No. of acres 120 175 125 85 35 8 Price per acre $5,714 $6,000 $6,470 $7,142 $9,375 Chapter 18

Procedure, continued Analyzing and adjusting comparable sales Identification and measurement of adjustments Elements of comparison Sequence of adjustments Suggested order of transactional adjustments Real property rights conveyed Financing terms Conditions of sale Expenditures made immediately after purchase Market conditions (time) Chapter 18

Adjustments to Comparable Sales Prices Subject Comparable 1 Comparable 2 Address 123 Mark Street 211 W. 30th Street 211 W. 25th Street Sale price 425000.00 550000.00 Rights transferred fee simple 0.00 Subtotal Financing cash to seller Conditions of sale arm’s-length Post-purchase repairs none Market conditions current 6 months 0.03 15 months 0.08 Current, cash-equivalent price 436907.00 592963.00 per sq. ft. of land 9.93 10.05 Location West Side Land size (sq. ft.) 35,000 44,000 59,000 Building design one story/avg. Construction quality masonry/avg. wood frame 0.10 Improvement age 21 19 -0.20 12 -0.90 Improvement condition fair superior equal Above-ground building area 3,500 2,900 0.30 2,000 0.75 Basement area (sq. ft.) Functional obsolescence typical only Other Net adjustment -0.15 Indicated value per sq. ft. of land including building 9.90 Chapter 18

Sales Comparison Grid Chapter 18 Subject Comparable 1 Comparable 2 1597 N. Cathy 3579 Eunice 1593 N. Jeanine 3571 E. Gina Street Avenue Sale price $500,000 $550,000 $400,000 Rights transferred fee simple $0 Subtotal Financing cash to seller contract − $50,000 $450,000 Conditions of sale arm’s-length Post-purchase repairs none needed minor repairs $40,000 $440,000 Market conditions now 2 mos. 0.30% 9 mos. 1.30% 3 mos. 0.50% Current, cash-equivalent price $451,350 $557,150 $442,200 Location $100,000 $165,000 − $65,000 $225,000 − $125,000 $78,000 $22,000 Adjusted price $386,350 $432,150 $464,200 Building design one story/avg. Const. quality brick/avg. steel/avg. steel/inferior $23,210 (5.0%) Improvement age 8 12 $30,908 (8.0%) 9 $8,643 (2.0%) 5 - $27,852 (- 6.0%) Improvement condition average equal Abv. gd. bldg. area 5,086 8,000 - $22,408 (- 5.8%) 12,000 - $59,637 (- 13.8%) 10,000 - $45,492 (- 9.8%) Finished office 25.00% 13.95% $23,768 (5.5%) Freezer/cooler Basement sq. ft. Functional utility Other none Net adjustment $8,500 (+ 2.2%) - $27,226 (− 6.3%) - $50,134 (− 10.8%) $394,850 $404,924 $414,066 Chapter 18

Procedure, continued Reconciling value indications in the sales comparison approach The adjusted price (adjust the sales price of the comp so it is a better indication of what the SS will sell for) is the indicated value of the subject. The number of comparables required depends on the assignment conditions. Chapter 18