Property comparison, also known as the comparables approach or market comparison method, is one of the most used methods in the real estate valuation process. This method involves evaluating the property in question by comparing it to similar properties that have recently sold in the same area. Here is how this process is done:
1. Selection of Comparable Properties:
- Selecting comparable properties or “comps” is a crucial step. These properties must have similar characteristics to the property being valued in terms of location, size, layout, construction quality, amenities and other relevant factors.
2. Setting Features:
- Since identical properties are rarely found, adjustments are made to reflect differences in characteristics between the property evaluated and comparable properties. For example, if the property being evaluated has an additional bedroom, an adjustment could be made to reflect that additional value.
3. Sales Price Analysis:
- The sales prices of comparable properties are analyzed. This analysis includes reviewing the most recent sales transactions in the same geographic area. Data should be as recent as possible to reflect current market conditions.
Four. Consideration of Variables:
- Various variables are considered, such as the exact location, the age of the property, the state of conservation, the amenities, the size of theground, among others. Variables that affect property value must be carefully evaluated and adjusted accordingly.
5. Adjusted Price Calculation:
- After making the appropriate adjustments, the adjusted price of each comparable property is calculated. These adjusted prices provide an estimate of how much the comparable property could have sold for if it had the same features as the appraised property.
6. Obtaining the Estimated Value:
- By averaging or weighting the adjusted prices of comparable properties, an estimated value for the appraised property is obtained. This estimated value becomes the estimated market value of the property.
7. Market Trend Analysis:
- Real estate market trends, such as appreciation or depreciation of home prices in the region, are considered to further adjust the value estimate and provide a more accurate perspective.
8. Review of Results:
- The results are reviewed and adjusted as necessary. Real estate appraisers can make additional analyzes and adjustments based on their experience and knowledge of the market.
9. Presentation of the Valuation Report:
- The resulting valuation is presented in a detailed report that includes the description of the property, the methodology used, the list of comparable properties, the adjustments made and the final estimate of value.
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