Property Valuation for Home Buyers: The Comparable Sales Method

What Is It?

The "Comparable Sales Method" is also called "Inferred Analysis" of property value. This method estimates the value of a house by comparing it to the prices of like-kind properties sold in similar locations within a recent period of time. The basic assumption is therefore that a property is worth what it will sell for, in the absence of undue stress and if reasonable time is given.

This method estimates the actual market value of homes by examining factual data. It is the most prevalent method in the residential property market and works with general trends and projections.

Procedure

1. The central task is to systematically collect data on comparable properties. Basically, the forces influencing value have to be weighed against each other. The relevant elements to look for can be split up as follows:

   Transaction Characteristics - Date of transaction, means of payment, transaction speed, etc.

   Asset Characteristics - Size, location, conditions, utility, building regulations, business climate, etc.

2. The best way to compare property would obviously be to inspect it in person. Since this option is very time-consuming and not always possible, the next best solution is to search property transaction databases. An ideal database will contain information relating to transaction date, price paid, property features and size etc.

Property Transaction Database

mouseprice.com provide the UK's leading comparable transaction database. Their service is the preferred choice of surveyors and valuers across the country. mouseprice.com offers a cleansed version of the entire Land Registry dataset for England & Wales - containing every sale since April 2000 and continually updated with the most recent prices.

The mouseprice.com service provides an invaluable tool in the search for comparable data. The Basic free account offers users a limited number of views, searches and reports each month.

Meanwhile, a Pro account is also available. This offers users the chance to carry out hundreds of views and searches and access a larger number of reports and local property price details. At the time of writing the Pro account costs £28 (excl VAT) per month.

To find comparable data on mouseprice.com we recommend:

• Specify the location by using a partial postcode - we find the Postcode Sub-Sector works best, e.g. 'SN11 8D' - all the postcode except for the last letter.
• Use the 'Most Recent Sale' filter.
• Try this out for yourself here: mouseprice.com

Example: Example: let's say you are the owner of No. 54 Milton Street, York YO10 3EP and are looking to sell. A search on the mouseprice database would tell you that over the last 18 months three houses on the same road had been sold, for £177,000, £172,000 and most recently £197,000.

Comparable Sales Method Advantages

• It is the most easy and straightforward method and has become general practice in the residential housing market.
• It leads to an objective valuation being placed on the property. The answer is connected to the actual market value as opposed to an individual's preferences.

Comparable Sales Method Disadvantages

• Sometimes it might be difficult to locate enough similar property transactions to draw meaningful conclusions with regards to what the value should be.
• Market value and price might differ due to "unreasonable" actions by other actors.
• This technique makes no reference to intrinsic value. If a property's price is reasonable on a comparable basis, it does not necessarily follow that this is a reasonable buying or selling price for an individual. For example, I might want to purchase a property in order to let it. The property's price might be within a reasonable market price range, but because average rents in the area are not very high, the investment would not be profitable to me.