comparative method
COMPARATIVE METHOD (COMPARISON APPROACH)
Principle
1. The subject property is compared to similar properties that have recently been sold for capital value, or rented for rental value.
2. The underlying assumption is that if the subject property had been in competition with the comparable property, and, appealing to the same class of purchaser, it would have been in the same market and would have fetched the same price.
3. The principle of substitution is thus intrinsic to this approach.
4. Because no two properties are alike, adjustments must be made to account for the differences.
5. This method is reliable only when:
a. The properties are similar physically.
b. The properties are in the same area.
c. The legal interest is similar.
d. There are efficient records of many transactions. Records of isolated cases are not sufficient.
e. The transactions are fairly recent. Out-of-date evidence can be misleading.
f. The property market is stable. An unstable market will affect the reliability of past sales evidence.
g. The economic factors underlying the trend of prices in the property market have been studied to interpret past evidence.
Advantages Of Using Comparative Method
1. Comparison is the most obvious and expected approach in the eyes of the public. It is widely used and readily understood.
2. Courts, boards, arbitrators and others charged with the responsibility of reaching conclusions as to the market of lands, place the greatest reliance and emphasis on evidence from actual market sales of comparable properties.
3. It requires the least judgment if sufficient data are available. Human error is minimized.
4. This approach reflects market behavior; the pivotal force behind market value.
Disadvantages Of Using Comparative Method
1. Market data are almost always historical. Considering the present is a broad extension of the past is a fallacy, yet such forms the very foundation of this
Principle
1. The subject property is compared to similar properties that have recently been sold for capital value, or rented for rental value.
2. The underlying assumption is that if the subject property had been in competition with the comparable property, and, appealing to the same class of purchaser, it would have been in the same market and would have fetched the same price.
3. The principle of substitution is thus intrinsic to this approach.
4. Because no two properties are alike, adjustments must be made to account for the differences.
5. This method is reliable only when:
a. The properties are similar physically.
b. The properties are in the same area.
c. The legal interest is similar.
d. There are efficient records of many transactions. Records of isolated cases are not sufficient.
e. The transactions are fairly recent. Out-of-date evidence can be misleading.
f. The property market is stable. An unstable market will affect the reliability of past sales evidence.
g. The economic factors underlying the trend of prices in the property market have been studied to interpret past evidence.
Advantages Of Using Comparative Method
1. Comparison is the most obvious and expected approach in the eyes of the public. It is widely used and readily understood.
2. Courts, boards, arbitrators and others charged with the responsibility of reaching conclusions as to the market of lands, place the greatest reliance and emphasis on evidence from actual market sales of comparable properties.
3. It requires the least judgment if sufficient data are available. Human error is minimized.
4. This approach reflects market behavior; the pivotal force behind market value.
Disadvantages Of Using Comparative Method
1. Market data are almost always historical. Considering the present is a broad extension of the past is a fallacy, yet such forms the very foundation of this