One of the key methods in valuing a residential property involves comparing properties that have recently sold within the neighbouring area and that offer similar characteristics to the property being valued.
Comparing recently sold properties to the property being valued – since the objective of the appraisal is to estimate the price that the subject property would most likely sell for if exposed to the marketplace, recent sales of similar properties are used for comparison and as benchmarks. Comparable sales represent what other informed buyers in the marketplace are willing to pay for similar features, location and amenities.
- Adjusting the sale price based on key differences in the property – since no two properties are exactly alike, the appraiser gathers information on the comparable sales and applies adjustments to the actual sale price of these sales to reflect their differences (location, characteristics and amenities) vis-à-vis the subject property.
The adjusted sale price of each comparable sale then provides a reasonable range of value to guide the appraiser in estimating a market value for the subject property.