Sales Approach / Sales Comparison Approach

The sales approach is the approach most recognized of the three "approaches to value" by the public since it is applied in almost all appraisal reports.  The sales approach analyzes similar or comparable properties by adjusting them for differences they have with the subject property.

The best comparable sales are recent, arm's-length, fee simple estate, cash sales that have similar location, similar market conditions, similar use potential, similar construction quality, similar condition, similar effective age, similar floor area ratio (FAR) and similar economic conditions.  The market value of the subject, in the sales approach, is related to the price paid for comparable properties.  Thus, it is based on the economic principal of substitution.

As noted, the approach can be used to analyze most property types when data is available (when similar properties are being sold in the market).  Special-purpose properties are one of the exceptional groups where few sales are available for the application of the approach.

When income generating capacity is not an important consideration (i.e. single-family residential properties and vacant land), the sales comparison approach is the most appropriate appraisal approach.  

Since the sales approach is the most easily understood it is also favored by courts and in jury trials even when the income approach may be more applicable.  

Appraisers rely on sales data for the sales approach that is provided by the County Assessor, by real estate agent / broker databases, buy principals (buyers and sellers) and by data service companies that collect and verify information on closed sales.  In Nevada full disclosure of the sales price paid for a property is made via the use of a recorded "Declaration of Value" affidavit. 

There is no set number of comparable sales that must be used in an appraisal report.  Three (3) sales is usually the minimal number used in a Las Vegas single-family home appraisal, however it is typical to see five (5) or more sales.  Commercial appraisal report in Nevada usually utilize five (5) or more comparable sales for analysis, but again, there is no set number.         

Adjustments are made to comparable sales are based on "paired-sales" analyses.  Changing market conditions (time adjustment), with either significant upward or downward movements in the prices being paid, is an important consideration and one that appraisers analyze in the sales approach.

Contact us with your questions or concerns regarding the sales approach or regarding your specific appraisal assignment in Nevada at 1-702-568-6699.  We can also be e-mailed at grigdon@cox.net.  

Commercial Real Estate Appraisals in the Las Vegas & Henderson, Nevada Area.