Sales comparison and market evidence

The sales comparison approach asks what buyers have paid for relevant alternatives and what those transactions imply about the subject property. Its economic foundation is substitution. A buyer comparing similar available homes evaluates location, condition, size, legal rights, and other features before deciding how much to pay.

The approach is particularly useful when enough relevant market sales exist, as often happens with owner-occupied houses and vacant residential lots. A highly specialized industrial facility with little comparable trading may require more emphasis on other approaches. The choice follows the property and evidence rather than an assumption that one formula works everywhere.

Comparable sales are evidence, not exact copies. Even adjacent houses can differ in condition, lot configuration, view, legal additions, and sale circumstances. The appraiser identifies important differences and estimates the market's response to them.

First identify the property interest and effective date. A fee-simple interest, a leased-fee interest subject to a long lease, and a partial interest are not automatically equivalent. The date anchors market conditions. A price negotiated during a different interest-rate or inventory environment may require a supported time adjustment.

Gather property-specific information: legal description, site size, improvement dimensions, condition, permitted use, easements, and relevant restrictions. Then examine the surrounding market and actual competing properties. A comparable is useful because it competes for similar buyers, not merely because it is the closest point on a map.

Closed sales show completed exchanges. Pending contracts can indicate current activity but may not close at the expected terms. Active listings show competition and seller expectations, not proof that buyers will pay the asking price. Expired listings can reveal resistance to a price or other marketing issues, but they require context.

Verify the transaction where possible. A reported price might include furniture, seller financing, unusual concessions, or a transfer between related parties. A rushed sale may reflect a seller's special circumstances. These facts do not necessarily make the transaction useless; they affect how the evidence is interpreted and adjusted.

The subject is the reference point. Adjust the comparable's sale price as though that comparable had the subject's relevant characteristics. If the comparable is superior, subtract the supported amount. If it is inferior, add the supported amount.

Suppose the subject lacks a garage and a comparable with a garage sold for $610,000. If market evidence attributes $25,000 to that garage advantage, the comparable indicates $610,000 - $25,000 = $585,000 for a property like the subject. Do not add $25,000 because garages are valuable: the comparable already includes that value.

Now suppose another comparable has one fewer bathroom than the subject. If the supported difference is $18,000, add $18,000 to that sale price. Both adjustments move the sale toward the subject's characteristics. Writing "comparable is better" or "comparable is worse" before doing arithmetic helps prevent sign errors.

The dollar adjustment should reflect contributory value, not necessarily construction cost. A garage costing $40,000 to build may produce a smaller or larger market difference. Arbitrary per-square-foot rules are not a substitute for market evidence. Size, condition, and layout can interact, so the same adjustment need not apply to every neighborhood and price range.

Property rights conveyed, financing terms, sale conditions, market conditions, location, physical features, and use restrictions can all affect comparison. An easement limiting a buildable area may require more analysis than a difference in landscaping. A renovated interior may not cure a poor floor plan.

Financing concessions require evaluating their effect on price. A seller's $10,000 payment toward buyer costs does not universally require a $10,000 price deduction. The relevant question is how the concession affected the negotiated price in that market. For simplified exam arithmetic, follow a stated supported adjustment rather than inventing one.

Time adjustments translate a transaction from its market context to the effective valuation date. An upward adjustment can be appropriate when relevant values rose between the comparable's contract date and the effective date. A general annual trend does not prove the same change occurred during every shorter interval. Use the period and rate actually given.

Location adjustments should reflect measurable market influences such as access, traffic, view, or proximity to desired uses. Avoid unsupported labels and protected-class assumptions. An appraisal should analyze the real property and market evidence objectively.

Finished lots are not an undeveloped tract. If a purchaser would divide a large tract into smaller parcels, the retail lot prices need allowances for subdivision costs, street and alley area, selling expenses, normal profit, and interest during marketing. BOE Rule 4(d).

These are fictional, supported inputs for the exercise, with no other adjustments. Street area has already reduced the saleable lot count; do not deduct it again. The $1.2 million retail total is not what the purchaser can pay for the raw tract.

Paired sales analysis compares transactions sufficiently alike to isolate the contribution of a feature. If two otherwise closely comparable homes sold at nearly the same time, one with a documented extra feature, the price difference can provide evidence. In real markets, additional differences and limited data make corroboration necessary.

A net adjustment is the signed sum. A gross adjustment adds the absolute amounts. A comparable with a $40,000 upward adjustment and a $38,000 downward adjustment has a $2,000 net adjustment but a $78,000 gross adjustment. The small net number hides substantial differences.

Neither figure alone dictates whether a comparable is acceptable. Fannie Mae's current guidance does not set universal maximum net or gross adjustment percentages. Data quality, market relevance, and explanation matter. A salesperson exam should not be answered using an invented blanket percentage rule.

Assume the adjustment amounts below are already supported by market analysis. Positive figures mean the comparable is inferior to the subject in that category.

The indications cluster between $605,000 and $610,000. The appraiser now considers which sales best match the subject, which adjustments are most reliable, and whether any unresolved differences remain. If B is the best verified and closest competitive alternative, a conclusion near $605,000 may be reasonable. The final opinion is not required to equal the arithmetic average of all three.

For C, the net adjustment is +$5,000 and the gross adjustment is $25,000. Confusing those totals would understate how much modification the comparison required. If another sale needs unsupported changes for location, condition, and legal use, including it merely to increase the sample count may reduce clarity.

Reconciliation weighs evidence. It occurs within the sales approach and across applicable approaches. A cost indication of $640,000 does not require averaging it equally with a well-supported $605,000 sales indication. The difference may reflect difficulty measuring depreciation or a mismatch between cost and buyer demand.

A useful value opinion identifies important assumptions and limits. Missing permit information, uncertain square footage, or an unresolved access issue may materially affect the conclusion. These are reasons to investigate or qualify the analysis, not permission to choose the price a client prefers.

Adjust the comparable, not the subject: subtract for a superior comparable feature and add for an inferior one. Use market contribution rather than automatically using cost. Closed sales, listings, and concessions supply different kinds of evidence. Finally, reconcile based on relevance and reliability; a mechanical average cannot repair weak comparisons.