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.

RELATED TERMS
  1. Appraiser

    An appraiser is a practitioner who has the knowledge and expertise ...
  2. Comparative Market Analysis

    A comparative market analysis is an examination of the prices ...
  3. List Price

    The list price, in the real estate world, is the suggested gross ...
  4. Collateral Value Insurance

    Collateral Value Insurance is a type of business insurance used ...
  5. Home Inspection

    Home inspection is an examination of the condition of a real ...
  6. Appraisal Fraud

    Appraisal fraud is a form of mortgage fraud, whereby the value ...
Related Articles
  1. Investing

    4 ways to value a real estate property

    Here are several approaches to evaluate real estate properties for investment purposes.
  2. Investing

    How To Challenge A Low Home Appraisal

    If you're unhappy with your home appraisal, here are some steps you can take.
  3. Investing

    How Much Do Home Appraisers Make?

    Experience and training can create a high-paying career as a home appraiser, despite competitive pressures and a high level of government regulation.
  4. Investing

    Learn to Value Real Estate Investment Property

    Make sure you know what your real estate investment is worth before you sign the ownership papers. Learn what capitalization rate means to your net operating income.
  5. Investing

    Real Estate Careers and Their Designations

    The real estate industry offers a wide variety of career opportunities to increase your skills.
  6. Investing

    Use Real Estate To Put Off Tax Bills

    Find out how you can build wealth and reduce your taxes.
  7. Investing

    A Guide to Real Estate Investing

    Investing in real estate is a popular choice for good reasons, but it's more complicated than owning your typical stocks and bonds.
  8. Investing

    Simple Ways to Invest in Real Estate

    Owning property isn't always easy, but there are plenty of perks. Here are some ways to invest in real estate.
RELATED FAQS
  1. How is market value determined in the real estate market?

    Learn how fair market value is determined during a real estate appraisal and how market values are really decided by professional ... Read Answer >>
  2. Do home appraisers use Zillow?

    When it comes to assessing a home for sale, licensed appraisers rely on detailed —and sometimes proprietary—information to ... Read Answer >>
Trading Center