Property Valuation for Home Sellers: 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 (a case of stress could be a divorce, for example, or the sale of property after a loved one's death).

This method estimates the actual market value of homes by examining factual data. It givs a good indication of what a house can be sold for and is the most prevalent method in the residential property market.

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 a property transaction database. Since two properties are almost never exactly alike, less comparable elements of the data should be eliminated or adjusted in order to ensure accuracy.
3. The simplest way to do the comparison is to assemble all relevant information. Since there are hardly ever two properties exactly alike, less comparable elements of the data should be eliminated or adjusted in order to ensure accuracy.

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 straightforward method and has become general practice, especially in the residential housing market.
• As a theoretical approach it most closely reflects the actual market value of a property, and therefore its objective value.

Comparable Sales Method Disadvantages

• Sometimes it might be difficult to locate enough similar, recently sold properties.
• Market value and price might differ due to "unreasonable" actions by either sellers or buyers.
• 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.

Example: An overview over the market shows that property similar to mine has sold for around £530,000 lately. However, by selling it at that price I would make a loss since with interest, I paid £550,000 for the house. Thus, I need to try to sell it for a higher price (if possible).