Browse Proptionary encyclopedia

Build your real estate vocabulary to be able to communicate and invest more effectively and professionally.

Market Comparison Approach

DEFINITION

Appraisal method that utilizes similar sold property to compare to the subject property to determine the subject property’s value. Typically the most common appraisal method used by agents.

EXPLANATION

The market comparison approach, more commonly referred to as the sales comparison approach, is a real estate appraisal method that compares a subject property with a nearby property that has already sold, is listed, or has expired. The most accurate comparison measure is to view the pricing for sold property’s. In the market comparison approach, the party conducting the search must determine whether the property they are comparing to their subject property is in fact comparable. This means that the properties are in relatively the same condition, age, and have similar features.

There are a few basic components that differentiate the market comparison approach from other methods. What is unique about the comparison approach is the emphasis on specific features of the property such as amenities, quality of fixtures, and design. This method requires the party doing the appraisal or the opinion of the value to compare the subject property’s characteristics with other neighboring homes. The amount of bedrooms, garage size, flooring type, and others greatly shape the way in which property values are determined.

Purpose of Market Comparison Approach

The market comparison approach, more commonly referred to as the sales market approach is generally the basis of all residential appraisal methods. Because it is the most detailed and uses the average price per square foot to calculate the value of a property, it helps property owners best determine the true value of their property. Unlike other appraisal methods that solely rely on recently sold properties, this method utilizes recently sold properties in addition to placing great emphasis on the features of the property being compared.

One of the main benefits of this type of appraisal methos is that it is relatively simple to conduct and inexpensive. The foundation of this method is using recently sold comparables in the nearby neighborhood as the basius for determining the property value. Doing this is inexpensive as it simply requires time to research sold propetties. The only portion of this method that is time consuming is omparing the specific features of the subject property against recently sold or lidted properties.

The market comparison approach primarily consists of comparing the subject property against other recently sold properties. This approach also compares the subject property to recently listed properties to gauge how much other sellers value their property. Ultaimtely, the most reliable measure is using recently sold properties as the basis for determining the value of property.

Viewing recently sold properties and following the patterns of how long it took for the properties to sell is a great starting point in calculating the value of property, which is why this method is traditionally the first thing sellers, agents, and real estate professionals will do prior to listing a property. Property listed too high will not sell and conversely property listed at a fair market value will garner attention and create competition.

Market Comparison Approach Process

Determining the value of a property using a CMA consists of using a specific process. The following section will highlight all the important steps an appraiser or agent will use to estimate the value of a property.

–             Property square foot

–             Lot size and usable land

–             Number of bedrooms and how large each one is, particularly the master bedroom

–             Number of bathrooms

–             Condition of property

–             Property amenities

The list above includes the most important factors to calculate the value of property.

The list below will state the factors of recently sold properties that are important in estimating the value of property.

–             Average sold price per square foot

–             Average sold price of neighboring property

–             Amenities of recently sold property

–             Condition of sold properties

When comparing recently sold property against a subject property, it is imperative that only nearby properties are used. It is suggested that you begin the process by only comparing properties within a ¼ mile radius to the subject property. If there are no recently sold comps within this distance, extend the search further by extending the search an additional ¼ mile.

Only recently sold comparables should be used. Recently sold generally refers to anything that sold only within the last 3 months. The value of real estate changes drastically in a short period of time, particularly before and after summer and winter. Summer is the period in which property is most often sold, as it is generally the time families purchase and relocate.

[quiz-new]