|
|
The 'Comparison Method' is also called 'Comparable Sales Method' of
property value. This method estimates the value of a house by comparing
it to the prices of like-kind properties sold in similar locations
within a recent period of time. The basic assumption is therefore that a
property is worth what it will sell for, in the absence of undue stress
and if reasonable time is given.
This method estimates the actual market value of homes by examining
factual data. It is the most prevalent method in the residential
property market and works with general trends and projections.
Procedure
The central task is to systematically collect data on comparable
properties. Basically, the forces influencing value have to be weighed
against each other. The relevant elements to look for can be split up as
follows:
1. Transaction Characteristics - Date of transaction, means of
payment, transaction speed, etc.
2. Asset Characteristics - Size, location, conditions, utility,
building regulations, business climate, etc.
The best way to compare property would obviously be to inspect it in
person. Since this option is very time-consuming and not always
possible, the next best solution is to search property transaction
databases. An ideal database will contain information relating to
transaction date, price paid, property features and size etc. Most of
the valuation firms
in Malaysia are using this method to perform their property valuation
request.
Example: let's say you were the owner of No. 54 ABC Street and were
looking to sell. A search on the valuation database using method No.1
above would tell you that identical houses on the same terrace all sold
for between RM125,000 and RM135,000 while the end-of-terrace house sold
for RM158,000 - all within the last six months. A search using method
No. 2 would show there were also four similar terrace houses sold on the
parallel ABC Street for between RM122,500 and RM140,000. Armed with this
information, the seller can confidently assume that his house price
should be no less than RM120,000 and could possibly fetch RM140,000.
Comparison Method Advantages
1. It is the most easy and straightforward method and has become general
practice in the residential housing market.
2. It leads to an objective valuation being placed on the property. The
answer is connected to the actual market value as opposed to an
individual's preferences.
Comparison Method Disadvantages
1. Sometimes it might be difficult to locate enough similar property
transactions to draw meaningful conclusions with regards to what the
value should be.
2. 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 this is a reasonable buying or selling price for an
individual.
|
|
