Of the top three methods to real estate appraisal, this article focuses on the
sales comparison approach. Now you may read about it under other names like the comparison method or comparables. All three of these terms refer to a common concept.
What is the Sales Comparison Approach?
You may have guessed, but it deals with real estate appraisal using comparisons. Specifically, the sales comparison approach (SCA) aims to find other properties with similar characteristics.
This way, it gives a better sense of the true market value. These properties must be recently sold.
Of course, the two properties being compared by must share some similar characteristics. This includes the location, design, the number of bathrooms, number of bedrooms, and other features. You’ll want to determine the value per square foot so you can account for any differences between the size of the two.
Ultimately, you’re trying to determine the value of various aspects of the house. For example, determining the price of a one versus two car garage. Or a house with a fireplace compared to one without a fireplace. After that, you add each of these values until you’ve accounted for every part of the property.
The benefits of using this approach
There are many benefits of using the comparison approach to real estate valuation. These include:
Based on recent market value – Since you are comparing against recent transactions, these values are both timely and relevant. If a transaction is more recent, it will be a better reflection of current market values.
Very flexible approach – By running multiple comparisons, you can really isolate the value of specific parts of a house. As we mentioned before, the garage and fireplace are two examples. This way, you can account for all the unique elements of a property rather than guessing.
Where you can find comparable property prices
There are tons of places you can look to get an idea. Really, any property on the market is fair game. You can look for properties on:
Zillow – Zillow is filled with all sorts of useful information which is perfect for this exact purpose. They even publish their own research reports for you to see.
MLS – You can never go wrong with your local MLS – you know the drill.
Craigslist – Try looking in the real estate section. Just make sure all the ads you use in your comparisons are real, accurate and not misleading.
Other real estate listings – Get creative where you look, especially if there’s a certain type of property you’re struggling to find the price for.
As with any valuation method, the comparison approach should not be used on its own. Always accompany your valuation techniques with other methods to ensure you see the whole story. Each one has its own perspective, so you want to use each as a guideline. Either way, the comparison approach is a great place to start.
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