Sales comparison approach
The sales comparison approach (SCA) relies on the assumption that a matrix of attributes or significant features of a property drive its value. For examples, in the case of a single family residence, such attributes might be floor area, views, location, number of bathrooms, lot size, age of the property and condition of property.
Economic Basis
The sales comparison approach is based upon the principles of
Examples of Methods
In practice, the most common SCA method used by
More advanced researchers and appraisers commonly employ statistical techniques based on multiple regression methods which generally compare a larger number of more geographically dispersed property transactions to determine the significance and magnitude of the impact of different attributes on property value. Research has shown that the sales adjustment grid and the multiple regression model are theoretically the same, with the former applying more heuristic methods and the latter using statistical techniques.[1]
Spatial auto regression plagues these statistical techniques, since high priced properties tend to cluster together and therefore one property price is not independent of its neighbor. Given property inflation and price cycles, both comparison techniques can become unreliable if the time interval between transactions sampled is excessive. The other factor undermining a simplistic use of the SCA is the evolving nature of city neighborhoods, though in reality urban evolution occurs gradually enough to minimize its impact on this approach to value.
In more complex situations, such as litigation or contaminated property appraisal, appraisers develop SCA adjustments using widely accepted advanced techniques, such as repeat sales models (to measure house price appreciation over time), survey research (e.g. -- contingent valuation), case studies (to develop adjustments in complex situations) or other statistically based techniques.[2]
Further reading
- The Appraisal of Real Estate, 12th Edition, by the Appraisal Institute is an industry-recognized textbook.
- The Uniform Standards of Professional Appraisal Practice, by The Appraisal Foundation, updated and published annually through the 2006 edition; henceforth, updated editions are to appear biannually.
- Sales Comparison Approach, by Lloyd D. Hanford, Jr., MAI