Comparing Residential Properties
The Comparable Sales Appraisal method is utilized quite extensively by appraisers in an urban environment. When prices are volatile, comparisons help cushion the work of the appraiser. Today's computer world makes it much easier to compare pricing of sales for comparable properties as the one being appraised.
Market Data (Comparable Sales Approach) - The second appraisal method that we will look at is called the Market Data method. It is also called the Comparable Sales Approach method.
Substitution - Market Data compares similar recent sales to establish value of the property being appraised. This is extremely useful when working with vacant land and used homes in urban areas.
Vacant Land - You cannot use the cost approach for vacant land because we use the cost of rebuilding a structure. You also cannot take any depreciation of raw land as well. So, the only thing we can use is the value of sales of comparable lots in comparable neighborhoods.
Used Homes - Market Data is used for existing homes that are more than a couple of years old. We use these in urban areas like subdivisions where homes are similar in make up and located in a similar area.
Home Differences - When working with Market Data, allow for subtle differences in properties. No two properties are identical. One might have a new paint job, another is a corner lot, yet another might have an expensive fence. We have to make adjustments to the comparable properties (property being compared to the appraised property).
Adjustments - Adjusted sales prices would include lot size, square footage size, condition of parts of the home, terms of sale (cash sale would be a lower price), area preference, date of sale, etc.
The typical statement by an appraiser for a comparison appraisal would be, "The value of subject property is between $157,150 and $154,300 based on Market Data."
Known Price - Adjustments are made to the known sales price of the comparable and are an opposite entry.
Adjustment Rule - If the condition is worse than our subject property, add that value to the comparable's value.
Principle of Substitution - All these adjustments are based on the principle of substitution. If we substitute a recently sold home (a comparable) for the subject property, we can give an opinion on value based on the recent sale.
The main valuation principle in the market approach is:
D) marginal productivity
A real estate broker who is using the market data approach to appraise a single family residence would be less likely to use the selling price of which of the following properties to compare to the subject property?
A) a similar home with slightly less square footage
B) a home of equal physical features that sold over 8 months ago
C) a similar home that sold last month, but which is located in a different neighborhood
D) a similar home that was sold by owners who were forced to sell because of financial difficulties
Conditions of the sale, location of each property, and physical characteristics of the property are used in
A) the cost approach
B) the market approach
C) the income approach
D) all of the above
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