Chapter 9
Analyzing and Adjusting
Comparable Sales
Basic Real Estate Appraisal: Principle & Procedure – 9th Edition
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STUDENT LEARNING OUTCOMES
• Name the Four Elements of Sales
Comparison
• List Three Rules for Making
Adjustments
• Name the Three Types of Adjustments
Most Commonly Used
• Explain How a Value Conclusion is
Reached
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9.1 BASIC METHODS OF COMPARING
SALES
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Qualitative vs. Quantitative Adjustments
Direct Comparison Method has Limitations –
Relies on “Intuition”, but a good cross-check
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ELEMENTS OF COMPARISON METHOD
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The Four Elements of Comparison
• Terms and Conditions of Sale
• Date of Sale
• Location Elements
• Physical Elements
Detailed on the following slides
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1. TERMS OF SALE
• Seller Financing
• More Favorable than Third-Party Lender terms?
• Unfavorable?
• Assumed Financing
• Favorable or Unfavorable?
• Seller-Paid Points or Closing Costs
• Generally, Buyer pays Points
• In a Buyer’s Market, Seller may pay Points
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1. CONDITIONS OF SALE (Con’t.)
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• Property Rights Conveyed
• Unusual Easements
• Lease Terms – Favorable to Tenants?
• Motives of the Parties
• Arm’s-Length
• Adequate Market Exposure
• Personal Property/Tenant Improvements
• Seller Concessions
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ELEMENTS OF COMPARISON (Con’t.)
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2. Date of Sale
• Market Conditions Influence Price
• Time of Sale vs. Date of Value
3. Location Elements
• Desirability
• Do Prices Differ Due to Location?
4. Physical Elements
• Size, Quality, Conditions, Age, etc.
• Specific Features / Degree of Modernization
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COMPARING & ADJUSTING SALES
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Comparison Process
• Compare and Analyze the Four Elements of
Comparison
• Are Feature Differences and Price Differences
Connected?
Adjustment Process
• Are Market-Derived Adjustments Reasonable?
• Should be Applied Consistently to Each Sale
• Should Reduce Price Spread Between Sales
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RULES FOR MAKING ADJUSTMENTS
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Adjust the Sale to the Subject!
Make the Sale to be More Like the Subject
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RULES FOR ADJUSTMENTS (Con’t.)
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Use Market-Derived Adjustments
• Reflect the Market’s Reaction
Adjust in the Proper Sequence
• From General to Specific
• Terms & Conditions of Sale
• Date of Sale
• Location Elements
• Physical Elements
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TYPES OF ADJUSTMENTS
• Lump-Sum Dollars
• Percentage
• Units of Comparison
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USING A SALES ADJUSTMENT GRID
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9.3 SELECTING AND USING UNITS OF
COMPARISON
Detailed on the following slides
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TYPES OF UNITS OF COMPARISON
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Total Property
• Prices for Similar Properties
• Minor Differences Accounted for by
Ranking the Sales
Physical Units
• Price per Square Foot or Acre
• Price per Room
• Price per Dwelling Unit (See Example 9.3)
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UNITS OF COMPARISON TYPES (Con’t.)
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Economic Units of Comparison
• Price per Buildable Dwelling Unit
• Price per Developable Building Area
• Gross Income Multipliers
Applying Units of Comparison
• Identify Why Unit Prices Differ
• As Units (Size) Increases / Unit Price may Decrease
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GRAPHING THE SALES
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9.3 HOW TO ESTIMATE DOLLAR AND
PERCENT ADJUSTMENTS
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Direct Market Method
• Matched Pair – At least Two Sales that can
be Compared to Estimate the Price
Difference Caused by One Characteristic
• Example 9.5 – Finding Adjustment for Size
• Subject contains 2,600 SF Gross Living Area
• Sale are Similar Except for GLA Size
See Next Slide
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EXAMPLE 9.5 - USING MATCHED PAIRS
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Calculation For Size Adjustment
Sale #
#2
#1
Difference
Size (SF)
2,700
2,500
200
Sale Price
$280,000
$270,000
$10,000
Adjustment: $10,000 ÷ 200 SF = $50 per SF
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DEPRECIATED COST METHOD
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• Best Application is When Estimating an
Adjustment for Physical Differences
• Represents an Indirect Method, based in
part on Market Data
• Example 9.7 - Finding a Garage Adjustment
• Subject has a 440 SF Garage
• Comparable Sale has No Garage
• Problem – Finding Amount to Adjust the Sale
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DEPRECIATED COST METHOD (Con’t.)
Cost New: 440 SF @ $43.50 =
Less: Depreciation
Cost New
$19,140
Age is 60 Yrs.
Life Expectancy 100 Yrs.
Depreciation: 60 ÷ 100 =
X 0.60
Equals: Depreciation in $
Equals: Adjustment Amount for Garage:
Rounded:
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$19,140
- 11,484
$ 7,656
$ 7,700
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ADJUSTING FOR SALE TERMS OR
CONDITIONS
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STATISTICS - LINEAR REGRESSION
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STATISTICS – MULTIPLE REGRESSION
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• Can Analyze Multiple Variables, versus a
Single Variable (Linear Regression)
• Requires a minimum of 20 to 30 sales
(properties)
• Used by Assessors (Mass Appraisals) and
Lenders (Appraisal Reviews)
• Now Used as a Valuation Tool and for
Supporting Adjustments by Appraisers
• CompCruncher & Redstone are examples of
programs by Bradford Software
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STATISTICS – MULTIPLE REGRESSION
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Sample Results (Output)
Source: Redstone User’s Guide, v. 1.0.25
www.BradfordSoftware.com/Redstone
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AUTOMATED VALUATION MODELS
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• Computer Software Programs (AVM)
• Many use a form of Multiple Regression
• Analyzes Data in Specified Area or Neighborhood
• Relates Results of Database Search to Subject
Property Information Imputed into the Model
(e.g. Zillow.com)
• When Applied to an Individual Property it is
Not an Appraisal (without an Appraiser)
• An AVM May Become the Basis for an
Appraisal (if Output is judged Reliable)
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9.4 ARRIVING AT AN INDICATED VALUE
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Four Steps to Arrive at a Conclusion
1. Review the Entire Approach
2. Review the Sales Data
3. Estimate a Value Range
4. Select a Final Value
(i.e. Reconciliation)
Detailed on the following slides
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#1 – REVIEW THE ENTIRE APPROACH
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• Comparability of Sales Selected
• Activity Levels
• Adjustment Accuracy
• Statistical Limits
• Lagging the Market
• Motivation / Knowledgeable Parties
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#2 – REVIEW THE SALES DATA
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• Sales Data
• Consider Reliability of Information
• Enough Information on Each Sale?
• Look Back at Motivations – Particularly on one
Key and Important Sale
• Reviewing Adjustments
• Consider Types of Adjustments / Reliability
• Consider $ Amounts & Percentages (Net/Gross)
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#3 – ESTIMATE A VALUE RANGE
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• May not be Necessary if Data are quite
Comparable and Range is Tight
• Using the Range of Adjusted Sales Prices
• Consider Upper and Lower Limits of Range
• Range of Value from Most Comparable Sales
• Do Indicators by Most Comparable Sales Cluster
in High or Low End of the Range?
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#4 – SELECT A FINAL VALUE
• Not a Mathematical Calculation – the Process
Requires Judgment!
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CHAPTER SUMMARY
Analyzing and adjusting comparable sales
rely on two main methods: the Direct
Comparison Method and the Elements of
Comparison Method.
The Direct Comparison Method simply
compares the overall desirability of each
sold property with that of the subject,
without any quantitative adjustments.
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CHAPTER SUMMARY (Con’t.)
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The Elements of Comparison Method
compares the sales with reference to the
details of four critical elements: the Terms
and Conditions of Sale, the Time of Sale, the
Location elements, and the Physical
Elements of the properties.
Arriving at a Value Conclusion requires a
Review of the Entire Approach, a Review of
the Sales Data, Estimating a Value Range,
and the Selecting a Final Value.
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IMPORTANT TERMS & CONCEPTS
Automated Valuation Model (AVM)
Matched Pair
Comparison Process
Multiple Regression
Date of Sale
Percentage Adjustment
Depreciated Cost Method
Physical Elements
Direct Comparison Method
Physical Unit of Comparison
Economic Unit of Comparison
Sales Adjustment Grid
Elements of Comparison Method
Sales Graph
Gross Income Multiplier (GIM)
Terms and Conditions of Sale
Linear Regression
Total Property Comparison
Location Elements
Unit of Comparison
Lump-Sum Dollar Adjustment
Value Range
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