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Sales Comparison Approach Real Estate | Real Estate Exam - YouTube
Channel: The Real Estate Classroom
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hey everyone my name is paul vachesky
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and welcome to the real estate classroom
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youtube channel hey real quick do me a
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favor give this video a thumbs up hit
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that red subscribe button click on the
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notification bell comments questions
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down below would appreciate it okay so
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in today's video we're going to discuss
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the sales
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comparison approach to value or
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sometimes called the market
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data approach it's the first type of
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appraisal that we are going to discuss
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i'm going to do two more the cost
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approach to value
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in the income approach to value but this
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one is the sales comparison approach
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let's get to it
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[Music]
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so in this video we're going to discuss
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a type of appraisal called the sales
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comparison approach or sometimes called
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the market data approach
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i briefly in my previous video we
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discussed the three types or the
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the three approaches to value we just
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gave the 50
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000 foot view now i'm going to do a
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video on each one of these types of
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appraisals
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and we're going to dive deep into each
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one and so you understand how the
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mechanics and the processes of each one
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work but today we're going to focus on
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the sales comparison approach or
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sometimes called the market data
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approach
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and remember that uh this is this type
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of approach to value is used for
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um we have the subject property that
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we're trying to determine the value on
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we don't know what the value is and
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we're going to use
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comparables similar properties that have
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sold in the last uh oh let's say three
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to six months that are similar in
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utility
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that we're going to use to determine the
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value now just to refresh your memory
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here
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we typically use these types of
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appraisals for residential type property
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and vacant land with no improvements on
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them
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again we compare our subject property
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that's the property that's getting the
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appraisal that's the property we're
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trying to determine what the value is
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and we use comparables so we're
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determining the value by comparison is
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essentially what we're doing
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now understand homes that are currently
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for sale
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or even those that are under contract
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typically the
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appraiser will not use as part of the
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the value processing all right number
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three or the next one is
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we use a minimum of three comparables
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to determine the value and then
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understand the appraiser is going to
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search the immediate area
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where the subject property is located to
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find those comparables and then
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we extend the search area
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as we need more and more comparables
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all right and then the last two things
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on your screen here
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just remember adjustments are made to
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the comparable
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properties to adjust for the differences
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between the properties and
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you add to the lesser property and
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subtract from the better property
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we're going to talk you're going to i'm
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going to illustrate that in the next
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couple of slides so let's get to that
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all right so let's take a look at how
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the process evaluation
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actually works now over here in your
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left hand column
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these are what we call the categories of
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adjustments
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all right so we have things like the
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number of bedrooms the number of garages
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features or amenities location now
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as i said in my previous video there is
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probably a dozen 15 maybe 16 different
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categories that we're going to make
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adjustments for because not every
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property has
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every feature so as you can see along
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the top here we have our subject
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property which is 1 2
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3 main street our first comparable is
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610
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main street and it sold
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excuse me the actual sale price was 240
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000 we have comparable number two
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and that's at 10 bend street
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and it sold for 260 000
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and then we have comparable number three
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1415
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y street and it sold for
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275 000 now understand these are
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actual sale prices these are three
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comparables that have recently sold
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probably within the last six months and
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those were the actual sale prices
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and so what we're going to do is we run
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down these different amenities here and
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we start
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and we start determining what has which
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property has
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these features and which one doesn't
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we're going to make adjustments to these
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sale prices in the end at the bottom
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we're going to come up with our adjusted
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sale price now
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i i know there's going to be a question
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why doesn't the appraiser just simply
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take
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these three properties and
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add them together and divide by three
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and use the average well maybe an a lazy
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appraiser would do that but that's not
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the proper technique or process to do it
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so let's go through
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uh and start making adjustments so our
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subject property
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123 main street it is a three-bedroom
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house
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now let's look at the comparables
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comparable number one
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has a three-bedroom is a three-bedroom
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house as well so
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there's going to be no adjustment for
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that because
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they're similar all right but let's look
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at comparable two and three
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both of those are four bedrooms four
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bedrooms do not look like
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our three bedroom so how do we make in
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monetary terms
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how do we make comparables 2 and 3
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look like ours so we're going to have to
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deduct from that actual sale price so
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uh the the appraiser has determined that
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each bedroom or the value of each
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bedroom
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in that area is ten thousand dollars now
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i know i'm going to get this question
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where do they get that value from
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number one that's beyond the scope of
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what we're trying to do here you do not
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need to know that for
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your licensing exam but to answer the
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question is
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appraisers in each locality they have a
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a a list of valuations for each type of
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feature
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so if you live in dallas texas all the
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appraisers are going to know that a
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bedroom
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each bedroom is is valued or is worth x
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amount of dollars a pool is worth x
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amount of dollars
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which is going to be different than in
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bismarck north dakota
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so the appraisers have that that uh that
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data available to them in the area that
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wherever this property is located
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uh the appraiser have the appraisers
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have determined that
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each bedroom has a value of ten thousand
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dollars and remember because two and
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three
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have four bedrooms and ours only has
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three we got to adjust
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down we have to make the the comparables
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look like
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ours in monetary terms so
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ten thousand dollars is going to be
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deducted from the actual sale
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price now let's look at how many garage
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spaces
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each of these properties have
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our subject property has two bedrooms
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comparable number one has two bedrooms
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as well so there
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is no adjustments that's done but let's
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look at comp 2
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and comp 3. both of those have three
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garage spaces so
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the appraisers in that area have
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determined that each garage space is
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worth 5 000 bucks so because
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comp 2 and 3 is bigger than ours we have
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to subtract
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and so we're going to subtract 5 000
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from comp 2 and comp 3.
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all right so let's take a look at
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features and amenities
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so our subject property has a pool
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comparable number one
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does not and comparable two and three
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both have pools so in comparable two and
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three because no adjustment is needed
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there's zero dollar amount that we have
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to take into consideration but let's
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look at comparable number one
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comparable number one does not have a
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pool but ours does so how do we make
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comparable number one look like ours
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well the appraisers have determined that
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uh
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the pool is worth twenty five hundred
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dollars so the appraiser is going to
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add twenty five hundred dollars to that
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two hundred and forty thousand dollar
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sale price in the adjusted sale price
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column because it does not have a pool
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and we're trying to make it look like
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ours so they're gonna add twenty five
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hundred dollars now notice
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the twenty five hundred dollars here is
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going to be added eventually
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to that 240 000
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sale price
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location so the lot that our property on
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is just average
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the lot that comparable number one is on
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is just average
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the lot that comparable number two is on
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is just
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average but look at comparable number
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three
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it's on an above average lot
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now what makes a lot average or above
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average or whatever
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well there could be a lot of reasons but
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let's just say for example in our
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scenario
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that comp number three their lot that
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they're on
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has a great view maybe a water view or a
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view of the river or the ocean or
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whatever the case may be and
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comparable one and two does not so
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there are no adjustments for comparable
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one and two in this category
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however because it's a better lot
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we're gonna adjust down remember we're
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trying to get
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the comparable to look like our subject
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property that's why we make the
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adjustments to the comparables
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the appraiser has determined that the
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the value is five thousand dollars so
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we're gonna
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deduct five thousand dollars off of this
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275
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000 sale price that comparable number
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three has
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now as you can see if this was a real
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appraisal the appraiser would continue
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down with all the categories
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but we're going to stop here i think
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i've illustrated it enough so you
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understand
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how the process works so one of the
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final things that's going to happen is
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we have
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all the adjustments made to comp number
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one we've made all the adjustments to
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comp number two and we've made all the
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adjustments to comparable number three
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now we're going to add them up and let's
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see what the is
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the adjusted sale price is for each
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comparable
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so we let's look at comparable number
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one it had an
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actual sale price three six months ago
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whatever it may be of 240 000.
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then we ended up having to add 2500
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because it does not have a pool so we
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want to try to make comparable number
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one
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look like our property the subject
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property
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so the adjusted sale price for
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comparable number one
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is two thousand two hundred and forty
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two thousand five hundred dollars
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let's look at comparable number two it
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started out with a
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a a sales price an actual sales price of
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260 000. we had to
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minus 10 000 for that extra bedroom
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remember i'm killing a dead horse here
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but i want you to understand this
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how do we make comparable number two
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which is a four bedroom
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look like our subject property which is
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a three bedroom
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the only way to do that is adjust the
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value
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so we're gonna deduct that ten thousand
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dollars we've a
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deducted five thousand for the extra uh
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garage space
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that gives this property comparable
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number two
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an adjusted sale price of two hundred
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and forty five thousand dollars
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now let's take comp number three which
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sold for
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two hundred and seventy five thousand
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dollars it has four bedrooms
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ours has three so we adjusted it down
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ten thousand dollars
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it has a three-car garage the the
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subject property only has a two-car
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garage so the appraiser adjusted it down
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five thousand dollars for that category
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and it's on an above average lot ours
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is just or the subject property is just
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average
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so the oppress the appraiser adjusted it
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down another
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five thousand dollars which gave us an
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adjusted sale price
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of 255 000
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right so where do we go from here again
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do we just
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add those three together and divide it
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by three
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well no that's not the correct way to do
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it what the appraiser is going to do to
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determine the value because the next
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question is
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all right we've done our adjustments and
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our calculations
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what is the value what's the appraised
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value of our subject property that we're
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trying to determine the value on
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so what the appraiser should do is
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find out which comparable
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is most similar to ours
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typically that's done by which
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comparable
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has the least adjustments for the
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features
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and in our case i think comparable
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number one does
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it only has one adjustment and that is
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for the pool
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and that's it so um
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the appraiser in my opinion is going to
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probably determine the value or make a
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valuation for the subject property
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somewhere between
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242 500 and 245
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000. it's unlikely that if they're going
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to use comparable number three or at
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least
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value it up around the range of
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comparable number three because again
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we're trying to find out which
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comparable
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or which comparables are the most
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like our subject property and that's
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what appraisers do and remember
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it is an opinion of value it's a
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professional opinion of value
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and so i may come up with as an
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appraiser i may come up
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with a valuation or i may determine the
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valuation of the subject property is 242
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500 another appraiser may say 245
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another appraiser may 2 may say 243 but
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my guess is all the appraised values are
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going to be
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within that that price range
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that my friends is the sales comparison
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approach to value
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very important that maybe you watch this
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a couple more times so you
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understand how we came to the the uh
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the valuations and how we made the
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adjustments to the comparables
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it's key to remember we make the the
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changes to the comparables not the
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subject property
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so all right if you're going to continue
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studying check out this video which is
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going to be my next video which is the
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cost approach to value
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if you have not subscribed to the
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channel please do so click the little
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circle
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to my left and then comments and
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questions down below
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it's all i got for this video i will see
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you in our next video
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