The sales comparison approach

Value from competing sales

The sales comparison approach estimates the subject property's market value using verified sales of similar properties. It rests on substitution: a buyer generally will not pay more than the cost of an equally desirable substitute. The subject is the property being valued; comparables, or comps, supply the sales evidence.

Select and verify

Prefer recent sales that compete with the subject in the same market. Compare location, use, size, age, condition, and amenities. Verify property rights, financing, seller concessions, and sale conditions. Independent, informed parties acting without unusual pressure provide useful evidence; investigate unusual transactions before relying on their prices. Listings reveal competition, but asking prices are not completed sale prices.

Adjust the comparable

Hold the subject still. Adjust each comparable's sale price to reflect the subject:

• Superior comparable feature: subtract its market-supported advantage.
• Inferior comparable feature: add its market-supported deficiency.

A comp sold for $300,000. It lacks the subject's garage, worth $15,000 in this market, but has a superior view worth $10,000. Its adjusted indication is $300,000 + $15,000 − $10,000 = $305,000. This is evidence of subject value, not a change to the comp's actual sale price.

Adjustments reflect market contribution, not necessarily installation cost. Paired sales analysis compares otherwise similar sales to help isolate the contribution of a differing feature. Market conditions adjustments account for price changes between a sale and the valuation date: an earlier lower-priced market may require an upward adjustment, and an earlier higher-priced market a downward adjustment.

Reconcile the evidence

Give greater weight to reliable, strongly comparable sales. Do not mechanically average the indications. Large positive and negative adjustments may cancel in the net figure, so inspect total adjustment magnitude too.

This is the general appraisal method; special tax appraisal rules can impose additional requirements. Sales comparison works especially well with sufficient similar sales, such as an active market of similar houses. Unusual properties and scarce sales reduce its reliability.