The appraiser selects recently sold comparable properties and makes adjustments to account for differences between each comparable and the subject property. Adjustments are always made to the comparable, never to the subject. If a comparable has a feature the subject lacks, the value is subtracted; if the subject has a feature the comparable lacks, the value is added. Ideally, comparables should have sold within the past six months.
If the subject property has 3 bedrooms and a comparable that sold for $300,000 has 4 bedrooms, the appraiser would subtract the value of the extra bedroom (say $15,000) from the comparable's price, adjusting it to $285,000.
Always remember: adjust the comparable, not the subject. Use the mnemonic CBS—Comparable Better, Subtract. If the comparable is better than the subject, subtract from the comparable's price. If the comparable is inferior, add to its price.
Related Terms
Related Concepts
Depreciation is an accounting method of allocating the cost of an asset over its useful life, allowing investors to deduct a portion of the asset's cost each year.
The income approach estimates a property's value based on the income it generates by converting net operating income into a value estimate using a capitalization rate. It is the preferred method for income-producing properties.
Highest and best use is an appraisal concept that identifies the most profitable, legally permitted, physically possible, and financially feasible use of a property. It is the foundation of all property valuation.
The cost approach estimates a property's value by calculating the current cost to rebuild the improvements, subtracting accumulated depreciation, and adding the land value. It is most reliable for new construction and special-purpose properties.
Reconciliation is the final step in the appraisal process where the appraiser analyzes the value indications from all applicable approaches and arrives at a single final opinion of value. It is not a simple average of the three values.
Frequently Asked Questions
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