The sales comparison approach is considered to be the most favored approach for residential properties. This approach is taken as a direct measurement of the market and its trends. The major supposition of the sales comparison approach is that market value of the subject is related to comparable property values within the same market area. We analyze the market by comparing recent sales of properties that are similar to the subject property in terms of quality, condition, type, and size.
The principles of contribution and substitution (among others) are at work with this approach to value.
The appraiser must gather the most recent comparable sales from the subject’s market area. An adjustment process is used to compensate for those superior or inferior amenities found between the comparables and the subject. The comparable sales will be adjusted to make them as similar to the subject as possible. The process by which the adjustments are derived is commonly known as “matched pair analysis” or “paired sales analysis.” The process consists of the appraiser’s ability to interpret the market and identify the market’s perception of value for a given amenity. After a contributory value has been extracted from the market, the perceived value is applied to the comparable sale as either a positive or negative adjustment. The rest is simple mathematics, adding or subtracting those contributory values and deriving an adjusted value for the comparable sales used in the analysis. The parameters of the adjusted values act as the range of value for the subject property. You will reconcile the adjusted values and provide an indicated value for the subject when using the sales comparison approach.