Chapter 8
THE SALES COMPARISON APPROACH
CHAPTER TERMS AND CONCEPTS
Adjustment techniques
Assessment Roll
Bracketing
Buyer’s motives
Central tendency
Comparable sale
Comparable sale search
area
Competitive property
Concessions
Linear and multiple
regressions
Location
Mean
Median
Mode
2
CHAPTER TERMS AND CONCEPTS
Open-market transaction
Physical characteristics
Public records
Range
Sales comparison
approach
Sales history
Sample
Seller’s motives
Standard deviation
Submarket
Terms of sale
Variables
Verification
3
LEARNING OUTCOMES
1. List and explain the four steps in the sales
comparison approach.
2. Explain the important concepts behind this
approach.
3. Explain how
comparable.
to
decide
if
a
sale
is
4. Discuss
what
information
about
comparable sale should be collected.
a
5. Identify the major sources of market data.
6. Outline the statistical techniques appraisers
can use to analyze sales.
SALES COMPARISON APPROCH
Collect Comparable Sales

MLS, Public Record, Commercial
databases
Analyze and Compare them to the
Subject Property
Adjust for Differences between the Sales
and the Subject (market adjustments)
Arrive at a Value Opinion for Subject
Property
Sales Comparison Approach Steps
Figure 8-1
Key Concepts of the Sales Comparison Approach
• The importance of substitution
• The simplicity of market comparisons
• The relationship to statistics
• The relevance of adjustments
• The significance of market data
SIGNIFICANCE OF SALES COMPARISON APPROACH
• Based upon the Principle of
Substitution
• Simple, Direct and Reliable
• Has Statistical Connections
• Includes Methods for Adjusting for
Property Differences
• Provides Data for Other Approaches

Income and cost approaches
STATISTICAL CONNECTIONS
Samples Market Activity
Identifies Market Patterns
Brackets the Value
Indicates the Most Probable Price
SELECTING THE COMPARABLE SALES
The Competitive Property
 Same neighborhood?
 Define search area
Open-Market Transactions
 Listed in MLS?
Date of Sale
 Close to date of valuation
SELECTING THE COMPARABLE SALES
How Comparable?
 Square footage, # bedrooms, # baths
 Design, age, & amenities
Sales History of Subject
 Three years prior to date of value
What Is a Comparable Sale?
Figure 8-5
COMPARABLE SALES DATA
Transaction Data
 Date of sale
 Sales price and terms
 Legal description
 Grantor and grantee
 Personal property included
 Motivation of Parties
Physical Data
 Land: Size, shape, topography, utilities available
 Improvements: size & type, quality, condition,
special features, any problems
COMPARABLE SALES DATA
Legal Data
 Zoning
 Taxes and assessments
 Public and private restrictions
Location
 Comparability
 Detrimental influences
Market Conditions
 General state of the market
 Availability of financing
TESTS OF COMPARABILITY
Each Comparable Sale Should Be
 A competitive property
 An open market transaction
 Close in time to the date of value
Comparing Locations
Figure 8-8
MARKET DATA SOURCES
•
•
•
•
•
•
Public Records
Multiple Listing Services (MLS)
Private/Commercial Data Services
Title Insurance Companies
Parties to the Transaction
Appraisers’ Files
SAMPLE GRANT DEED
18
SALES DATA EXAMPLE
Figure 8-10
19
DATA RESOURCES ON THE INTERNET
Websites of Government Agencies
 General data on the economy
 Regulatory information affecting real estate
Websites of Industry Service
Organizations
 Industry trends and guidelines
 Construction cost estimating services
 Market data banks, appraisal support
DATA RESOURCES ON THE INTERNET
Websites of Trade Associations
 Member information services
 General information for the public
APPRAISAL STATISTICAL CONCEPTS
Central Tendency
 Mean = Average value or price
 Median = Middle value or price
 Mode = Most common value or price
 Range = Difference between high and low value
 Standard Deviation = Description of how values
differ from the mean
Linear and Multiple Regression
 Can Calculate relationships between property
features and property price
 Can Suggest value of the subject property
SUMMARY
The sales comparison approach is one of the three
approaches used to estimate value. The main feature of
the sales comparison approach is the process of
analyzing sales and comparing them to the subject
property, based on the principle of substitution. The
sales comparison approach consists of four steps.
1. Research the sales.
2. Analyze the sales.
3. Adjust the sales for differences between
the sales and the subject property.
4. Arrive at a value estimate.