Also known as “Inferred Analysis of property value”, the Comparable Sales Method estimates the value of a house by examining the prices of other houses of a similar specification, in similar locations within a recent timeframe, and comparing them.
This is the most common method used in the residential property market, capturing general trends and projections and employing the common sense principle that substitution for similar goods should imply similar value.
To instigate this method, the buyer must collect relevant data for comparable properties. The relevant elements necessary to employ the comparable sales method fall into two categories,
1. Transaction characteristics- these include date of transaction, means of payment, transaction speed etc. 2. Asset characteristics- such as size, location, conditions, utility, building regulations, business climate etc.
The most advisable way to compare properties would be to inspect them. However, as this is time consuming, and not always possible, transaction databases are available.
The ideal database would contain information relating to transaction date, price paid, property features and size etc. Below are listed some of the databases available to the general public.
Limited access to the mouseprice.com service is available for free to the general public. This website aims to offer user-friendly access to the Land Registry price paid database. The Land Registry database includes transaction prices and dates for almost all residential property transactions in England and Wales. The Land Registry database unfortunately does not include characteristics such as property size and bedroom numbers. This supplementary characteristic information is shown on mouseprice where available.
Professionals such as valuation surveyors and property investors use a database provided by Calnea Analytics. This includes the information contained within Mouseprice.com, but supplements this with additional characteristics such as photographs, floor plans and descriptions derived from estate agency listings. Being able to see a property’s asking price alongside the actual price the property eventually sold is particularly insightful. A demonstration of this comparables database is available here.
Another source of data is Estate Agents’ own databases of what they have sold. Unfortunately, there is no central repository for this information. Thus, their data usually concerns only a small proportion of total sales in a particular area. Estate Agents are not always happy to provide complete information and cannot be relied upon for an official valuation. The benefits can be that where available, this data contains rich descriptive information.
+ Comparatives are the most straightforward method for valuing property and are current general practice, especially in the residential housing market.
+ As a theoretical approach it most closely reflects the instinctive market value of a property.
– In some areas it may be difficult to locate enough similar, recently sold properties.
– Market value and price might differ due to “unreasonable” actions by other actors,
This technique makes no reference to intrinsic value. If a property’s price is reasonable on a comparable basis, it does not necessarily follow that it will transact for that price.