The sales comparison approach is the most intuitive and best understood of the three approaches to value. Land buyers, companies’ office space and real estate investors all utilize this approach. Comparable sales are often referred to as comps and rental comparables are often referred to as rent comps.
Performing the sales comparison approach includes selecting sales comparables and making appropriate adjustments. Selecting comparables if often the more challenging step. The process of accurately making adjustments requires research, skill and experience.
Selecting comparable sales is the most critical aspect of the sales comparison approach. Truly comparable sales must be utilized for value indication to be meaningful and impact the final result for less than sales which are not comparable.
Appraisers usually focus on land use (type of property) location, size, age and date of sale when selecting comparable sales. Selecting sales comparables involves selecting which feature (location, size, age and date of sale) are most meaningful. Since real estate is not fungible and sales occur periodically, comparables are never identical to the subject property.
Comparable sales should be the same land use as the subject property in virtually all cases. If a property is being appraised as renovated, the comparables should be the property type as renovated.
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