Direct Capital Value Comparison

(Sales Comparison Approach)

1. Introduction:
• It is the commonly used method and most accurate
• It is frequently used in the valuation of residential
property for sale purpose and rental valuation for
commercial properties.
• Require the comparable properties of :
* A similar property
* A similar area
* A recent transaction
* A market need to be stable.
• The less the comparable with these requirements, the
less valid the comparison will be.
 Direct Capital Value Comparison
(Sales Comparison Approach)
2. Valuation Process:
• 7 Steps required:
- Identification of the subject property characteristics
- Identification and understanding of the transaction conditions
- Identification of the immediate relevant submarket
- Identification of all recent transaction that have occurred within
this relevant submarket.
- Selection of best sample of comparable properties
- Adjusting prices of observed transactions to take into account
the subject property characteristics
- Assess market value of the subject property.
 Direct Capital Value Comparison
(Sales Comparison Approach)
3. Adjusting Comparable Evidence
- No hard and fast rules
- Requires a great amount of skill and local knowledge
- Factors that increase and /or decrease value are :
Increase : Number of room, built-in central heating, good
location, modern equipment, lot size (large
garden), garage, double glazing, energy
efficiency (loft insulation)
Decrease : No central heating, poor location, mid-terrace as
opposed to end terrace, building failure (rising
damp, dry rot), old facilities( lead wiring and
plumbing), no garage or off-street parking
 Direct Capital Value Comparison
(Sales Comparison Approach
4. How many comparable:
- Depends on uniqueness of the subject property
and the homogeneity of the sub- market within
which it is located.
- Should gather as much relevant evidence of
recent transactions as possible.
 Direct Capital Value Comparison
(Sales Comparison Approach)
5. Direct Rental Value Comparison
- similar approach is necessary
- More detail in the investment method
 Direct Capital Value Comparison
(Sales Comparison Approach
6. Formula used:
Sales Price of Comparable Property +/- Adjustments
= Indicated Value
of Subject Property
 Direct Capital Value Comparison
(Sales Comparison Approach
7. Example
* House A , the subject property , has central air-conditioning
and a garage.
* A comparable property , House B , sold for $300,000 one month
before the time of appraisal. House B, has a garage but no
central air-conditioning, which is valued at $5,000.
* House C is comparable to the subject and sold recently for
$285,000. House C has central air-conditioning but no garage,
which is valued at $22,000
* House D , also comparable to the subject property, sold recently
for $330,000. It has both a garage and central air-conditioning .
House D , however, is located in a better area of a
neighborhood than the subject is, because it backs up to a
conservation area. The location adjustment is valued at $20,000
 Direct Capital Value Comparison
(Sales Comparison Approach)
8. Working out the example:
Comparables
B C D
Sales Price $300,000 $285,000 $330,000
Location - - - 20,000
Garage + 22,000
Air-conditioning +5,000_________________________
Adjusted sales $305,000 $307,000 $310,000
Price
 Direct Capital Value Comparison
(Sales Comparison Approach)
• The value of House A, the subject property , will fall
within the price range of the adjusted comparable
properties – that is , between $305,000 and
$310,000. Large differences in value might suggest
that the properties are not similar enough. In such
case, the appraiser would have to recheck the
characteristics of the comparable properties and the
validity of the sales.
 Direct Capital Value Comparison
(Sales Comparison Approach)
9. Conclusion:
- The accuracy of an appraisal using the sales
comparable approach depends on the appraiser’s use
of reliable adjustment values.

• Study the example cited in the study note – 20 Valley

View Road
• Attempt Question 2 – Prepare a Market Valuation of a
specified detached house using the 4 comparables