Question

1. In the final step of the sales comparison approach, what are the four actions needed to arrive at a value conclusion?
2. What are the rules for making sales adjustments in the sales comparison approach?
3. What are the four elements of comparison used in the sales comparison approach?

Answer 1

Sales comparison approach is used generally t compare the price of real estate properties, by comparing the cost of other similar properties sold in the same area, in order to get a fair estimate of the property by comparission.

the steps involved in this method are as follows.

1. identify - identify the properties near by which were sold in the near past in order to consider them for comparison.

2. specific characteristics--for example finding out the date of the revious sale. for example if the sale happened 1 year back, then theater would be definately an appreciation of the property depending on the market conditions or we would have to consider the time value of money as well. since it is a fct that no to properties are the same, fctos like size, and age of the property would also paly an important role

3. make necessary adjustments--Since in the world of real estate it is impossible to get the same exact match for your property, we would have to make some fair adjustments. for example if your property Is nearer to a hospital or a school or a super market, it would definatelty increase the price of your property because of the convenience due to proximity to any of the above.

4. weigh the comparable - attaching a dollar value to the above comparisons made, would help us arriving at the final price for the property. for example if we have identified that our property Is nearer to a hospital than the property we are comparing to , would would like to inclreae te Vale by $10,000.

One important thing to remember is that not too many variable should be there when we compare. Since the purpose of this method is to provide a similar property and derive the cost of our property through comparison, not more that 15 to 20 per cent variations must be there. If you feel that there are 20% changes , then be sure that you are not comparing it to the right property.

Also help of an expert is also advisable as there is no particular or specific formula that is involved in this approach, its all based on comparison and what you think should be the change on cost of the differernce. Inexperience can lead to improper calculations of the Price.