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Formula – Sales Comparison Approach Property Valuation
Sometimes also referred to as the market comparison approach, the sales comparison approach to property valuation is one of the most common methods of valuing real estate.
[(V1+V2+V3…)/N] +or- A = MV
V1 – Comparable property 1, V2 – Comparable property 2, and so on
N – Number of properties
A – plus or minus adjustments
MV – Market value
The key to the reliability of this approach is to use recent prices of comparable properties.
While it is impossible to find 2 similar properties, the individual property values used in the equation should be as similar as possible on factors such as floor area, type of house, number of rooms, etc.
The results of the formula is often compared with the results of the cost approach.
It is widely accepted in the real estate industry that if both results differ greatly, the calculations must be wrong somewhere.