Module05 - Outline

Module05 - Outline - The Sales Comparison Approach...

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The Sales Comparison Approach Objectives We introduce the sales comparison approach 8.1 Introducing the Sales Comparison Approach 8.2 Collecting Comparable Sales Data 8.3 Data Resources on the Internet 8.4 Appraisal Statistical Concepts 9.1 Basic Methods of Comparing Sales 9.2 Selecting and Using Units of Comparison 9.3 How to Estimate Dollar and Percent Adjustments 9.4 Arriving at an Indicated Value 8.1 INTRODUCING THE SALES COMPARISON APPROACH The sales comparison approach is the most important of the value approaches. Outline of the Sales Comparison Approach 1. Collect recent sales of properties comparable to the subject property. 2. Analyze these sales and compare them with the subject property. 3. Adjust for the differences between the sales and the subject property. 4. Arrive at a value estimate as indicated by the adjusted sales. Key Concepts of the Sales Comparison Approach The Importance of Substitution 1. The sales comparison approach is based on the principle of substitution . 2. This process is commonly used by buyers and sellers. Simplicity The sales comparison approach is simple because it: 1. Is the most direct approach. 2. Requires fewer calculations. 3. Is most understandable. 4. Is easier to explain. Statistical Connections The sales comparison approach is related to statistics because it: 1. Uses a sampling of market activities. 2. Identifies market patterns. 3. Uses a bracketing technique to indicate the range of value. 4. Can be used to indicate the most probable selling price. Adjustments The sales comparison approach offers sales analysis and adjustment methods that can: 1. Help identify the property features that are affecting the selling price. 2. Suggest how much to adjust the price(s). 3. Allow an objective review of the appraisal.
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Use of Market Data In Other Approaches Each of the three approaches to value relies upon market data: 1. The sales comparison approach makes direct use of market sales data. 2. The cost approach uses vacant land sales to estimate land value, and analyzes improved sales to estimate accrued depreciation. 3. The income approach uses rents, vacancy rates, expenses, and capitalization rates that are all based upon market data. 8.2 COLLECTING COMPARABLE SALES DATA Selecting the Comparable Sales A sale must meet three criteria to be a valid comparable. It must be a competitive property , an open market transaction , and a time of sale close to the date of value . The Competitive Property 1. Location: one that a buyer of the subject property would also consider. 2. Physical characteristics: must meet the needs of the prospective buyer. 3. Appeal: attracts the same buyer group, or “sub-market”. Open Market Transactions 1. Arm’s-length sales 2. Adequate market exposure 3. No unusual terms or conditions Date of Sale The date of sale should be close to the date of value, depending on: 1. Supply and demand changes 2. Market attitude changes 3. General and local market trends How Comparable Must a Comparable Be? 1.
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This note was uploaded on 09/17/2011 for the course CGS 3300 taught by Professor Kaleem during the Spring '08 term at FIU.

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Module05 - Outline - The Sales Comparison Approach...

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