Units of Comparison

 

Real property appraisers compare sales deemed similar to their subject property using a selected unit of comparison.  The unit of comparison used for vacant land parcels can, for example, be the total purchase price, the price per Acre or the price per square foot of gross or net land area.  Generally real estate appraisers try to select a unit of comparison that is most often used by market participants or one that most easily solves their appraisal problem.

 

Residential homes are most often analyzed with the total sales price being the unit of comparison, since buyers and sellers compare the total sales price of one home to another when shopping to purchase and make adjustments for features, the adjustment methodology does hold validity in most cases.   The price per square foot of Gross Living Area (GLA), while not as prevalent a unit of comparison for single-family residences, has been used as an alternate unit of comparison by appraisers.  Many market participants look at the sales price of the property they are interested in acquiring, for example it may be $ 150 per square foot, and then investigate other similar properties sold at higher or lower prices per square foot of gross living area.  Then they analyze the differences, or in appraisal terms they adjust the comparable sales for different features.

 

When size (or building area) becomes an issue in a residential appraisal assignment, using the price per square foot of gross living area as the unit of comparison may offer the appraiser a methodology that is not focused on the size issue.  Thus, comparisons are only made for differences in other features.  

 

Multi-family properties (Apartment Complexes) are often compared on a per dwelling unit basis when appraisers analyze them using the sales approach.  If, for example, 12-plex buildings are selling for $ 100,000 per unit, investors often look at the subject on a per unit basis while adjusting the similar sales.  

 

Since net operating income (NOI) and its capitalization are often important factor in an appraisal report, and the derivation of those figures are discussed in the income approach, that approach is often given the most consideration (or weight).  When multi-family properties are analyzed, the sales approach is often deemed a secondary methodology after the income approach.

 

The price per net rentable area (generally per square foot of building area) is the unit of comparison most often used by commercial appraisers in the analysis of income producing commercial or industrial buildings.  The price per square foot of building area unit of comparison effectively reduces all of the property features and factors affecting its value down to the building area.  Thus if two buildings are exactly the same with regard to size, age and finish but one is located on 1.0 Acre site and the other is on 2.0 Acre site, the difference in value between the two should be reflected in the per square foot building unit sales price.  We would expect that the property with the larger site would have a higher unit value due to its superior land feature or amenity.

 

As discussed, at times appraisers will use different units of comparison when appraising the same property, however the results or conclusions of analyses using different units of comparison should yield similar results.     

 

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

 


                                                     



Copyright 2007 Horizon Village Realty & Appraisal

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