Chapter 9
Comparable-Sales Analysis

Nature of the Approach

*   Imperfections of real estate markets

*   Necessity for use of appraisers

Data collection and Verification

*   Sources

*   Reliability

Adjustments

*   Addition and subtraction of value differences

*   Adjustment of comparables' prices

*   Elements of Comparison

*   Transaction differences

*   Financing terms

*   Conditions of sale

*   Market conditions

*   Property differences

*   Location

*   Physical characteristics

*   Economic characteristics (Income properties)

Obtaining Comparable Properties

*   Meaning of comparability

*   Transaction should have occurred within preceding one or two years

*   Minimum number of transactions required

Methods of Adjustment

*   Units of comparison

*   Dollar adjustments

*   Percentage adjustments

Sequence of Adjustments

*   Percentage adjustments

*   Financing terms and conditions of sale (Normal sale price)

*   Market conditions (Adjusted normal sale price)

*   Location, physical characteristics, and economic (Final adjusted sale price)

*   Dollar adjustments--any sequence o.k.

Comparable Sales Example

*   Subj.: 3 bdrm, 2 bath, 1-car gar., 2100 s.f.

*   Sale 1: Sales Price = $98,000
3 bedroom, two bath, 1-car garage, 2000 s.f.

*   Sale 2: Sales Price = $108,000
3 bedroom, two bath, 2-car garage, 2200 s.f.

*   Sale 3: Sales Price = $101,000
3 bedroom, one bath, 1-car garage, 2200 s.f.

*   Sale 4: Sales Price = $93,000
3 bedroom, one bath, 1-car garage, 2000 s.f.

Sales Comparison Adjustments

*   Adjustment for Bathrooms: Compare Sale 1 and Sale 4; $5,000 difference for bath.

*   Adjustment for Size: Compare Sale 1 and Sale 3; If Sale three had 2 baths, it would have sold for $106,000, so the extra 200 s.f. cost an extra $8,000 or $40 per s.f.

*   Adjustment for extra garage stall: Compare Sale 1 and Sale 2; If sale 2 had 2000 s.f. it would have sold for $100,000, so the extra garage cost $2,000.

Sales Comparison Adjustment Grid

*   Sale1 Sale2 Sale3 Sale4

*   Price $98,000 $108,000 $101,000 $93,000

*   Garages $0 -$2,000 $0 $0

*   Baths $0 $0 +$5,000 +$5,000

*   Size +$4,000         -$4,000 -$4,000 +$4,000

*   Adjusted Price
$102,000 $102,000 $102,000 $102,000

*   Indicated Sales Price is then $102,000

Presentation of Adjustment Process (See Exhibit 9.4, pp. 143-145)

The Value Conclusion

Applicability of Comparable Sales Analysis

*   Active market

*   Use of subject and comparable must be same