406: Sales Comparison Approach to Value

The sales comparison approach to value—traditionally referred to as the market data approach—is an analysis of comparable sales, contract sales, and listings of properties that are the most comparable to the subject property.  The Uniform Standards of Professional Appraisal Practice require the appraiser to report a minimum three-year prior sales history for the subject property.  We require the appraiser to comply with the minimum requirements of USPAP.  For specific information concerning the comparability of manufactured home sales, please refer to Section 304.01.

The appraiser's analysis of a property must take into consideration all factors that have an effect on value, recognizing that a well-informed or well-advised purchaser will pay no more for a property than the price he or she would pay for a similar property of equal desirability and utility if it were purchased without undue delay.  To accomplish this, the appraiser must analyze the closed or settled sales, the contract sales, and the offerings or listings of properties that are the most comparable to the subject property in order to identify any significant differences (or elements of comparison) that could affect his or her opinion of value for the subject property.  This is particularly important in declining markets because the competing listings and contract sales probably reflect the upper-end of value for the subject property as of the effective date of the appraisal.  This analysis will result in more accurate reporting on market conditions, including trends that indicate sale prices for contract sales and asking prices for recent offerings or listings have declined.  (Also see Section 403.03, Trend of Property Values, Demand/Supply, and Marketing Time.)

The comparable market data must be verified, analyzed, and adjusted for differences between the comparable properties and the subject property.  On most appraisal forms, the appraiser will identify these adjustments by assigning a dollar value to reflect the market's reaction to any features of the comparable properties that differ from those of the subject property.  However, when the Desktop Underwriter Qualitative Analysis Appraisal Report (Form 2065) is used, the appraiser will identify the adjustments in terms of relative value relationships between the features of the comparable properties and those of the subject property without assigning an estimated dollar value to the relationships.

Modified 1/31/2006