Definition and Example
The sales comparison approach to appraisal involves looking at similar nearby homes and using their estimates to determine the market value of the home currently for sale. These recently sold homes in the area are known as “comparables,” as they are similar in features, lot size, quality of construction, number of bedrooms, bathrooms, and so on.
How Does the Sales Comparison Approach Work?
For a real estate agent, the sales comparison approach to appraisal begins by looking at a list of recent sales in the area that feature the same number of bedrooms and bathrooms, lot size, age of the home, desired features, and approximate location. They then average the sales prices of three to four homes that are very similar.
Agent Sales Comparison Approach vs. Appraiser Sales Comparison Approach
Agent Sales Comparison Approach: The agent wants to understand the microenvironment in which they are marketing the home, that is, the neighborhood and the moment in time.
Appraiser Sales Comparison Approach: The appraiser wants to gather various forms of evidence to demonstrate the home’s value to the lender.
What Does the Sales Comparison Approach Mean for Buyers and Sellers?
The sales comparison approach to selling is a way to arrive at a price based on evidence, but it also takes the seller’s desires into account. For the buyer, the sales comparison approach acts as a “reality check” if the house is overpriced from the start or if strong demand has driven up the selling price. Although it can be frustrating when the sales comparison provides a lower value than the asking price (sometimes referred to by the phrase “the house didn’t appraise”), it can also reopen negotiations in certain cases. The buyer may realize they were attached to the previous approach or that the appraiser uncovered facts about the home that made it less valuable than expected.
Considerations: Sales comparison approach to appraisal, location-based comparison, agent sales comparisons, appraiser sales comparisons, true market value.
Source: https://www.thebalancemoney.com/what-is-the-sales-comparison-approach-to-appraisals-5201318
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