The sales comparison approach (SCA) is a real estate valuation method. It compares properties recently sold to one that an investor or developer is looking to buy. Adjustments in real estate pricing take place according to differences in the market. This approach is one of the pillars for the formulation of comparative market analysis (CMA). Home sellers and buyers use the results of the CMA or CSA to determine the listing price of their property.
Experts from investment property companies cite that the SCA and CMA follow a structure when it comes to determining the value of real estate. Some of the requirements of these approaches are as follows:
- When comparing properties, they should be as similar as possible to the property in question. Consider parameters such as the number of bedrooms and bathrooms, the size of the lot and size in square feet.
- The properties included in the calculation must be near one another. They should be in the same neighborhood or city.
- The sales date of the properties you’ll use for comparison must be recent. Real estate sold too far in the past will be inaccurate for the current properties sold in the market. If there are too few nearby properties for comparison, moving further out regarding distance is a must.
The SCA and CMA are valuable models for both property professionals and sellers. They determine if listed prices are in line with the current market prices. Agents and buyers alike must be thorough when it comes to comparing recently sold real estate and those currently listed. Market prices constantly change. And based on supply and demand as well as external factors, such as the economy, there are reasons to lower or raise the price when using the SCA or CMA.
The sales comparison approach is a valuation model commonly used by agents, buyers, and sellers. They provide a glimpse of the current status of supply and demand as well as the potential value of the property you want to buy or sell.