DEFINITION of Sales Comparison Approach (SCA)
The sales comparison approach is a real estate appraisal method that compares a piece of property to other properties with similar characteristics that have been sold recently. The method takes into account the effect that individual features have on the overall property value. This means the total value of a property is a sum of the values of all of its features. Real estate agents and appraisers may use this approach when evaluating properties to sell.
BREAKING DOWN Sales Comparison Approach (SCA)
The sales comparison approach often entails looking at local properties to see what they have in common. This allows appraisers to determine values for property features, such as fireplaces or two car garages and requires less sophisticated statistical methods than checking on sales of properties in a wider geographic area.
Appraisers and agents aim to base their comparisons on real restate with highly similar features. For example, a house should be compared with properties that have the same number of bedrooms, garages and bathrooms. The comparison should include homes of about the same square footage on parcels of land that are about the same size. The sales comparison approach is often applied to homes that are adjacent to the property being assessed.
How the Sales Comparison Approach Is Applied
The sales comparison approach is used as the backbone for comparative market analyses by real estate professionals.
The geography of where real estate is located and the condition of the local topography could have direct effects on the value assigned to all comparable properties. For instance, a row of houses located near an airport would all have noise issues that would be part of their sales comparisons. If those same houses were located in a quieter part of the city, the valuation would be different. It would be more appropriate to compare houses located in the same neighborhood than homes in another section of town, even if they share the same architectural designs.
Other external factors can come into play with an appraisal, such as pollution levels on the property and the surrounding area. The state of the market at the time of a sale is also a significant determinant for prices.
The overall condition of the home can influence an appraisal in the sales comparison approach. For example, two houses may be of the same design, with the same number of rooms, but one of the houses may be in need of repair. There could be termite damage, issues with plumbing or roofing that must be replaced. Those factors would affect the property’s value, regardless of having comparable features.