Tool for creating valuation reports using the Comparative method
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VALUATION FORM FOR LAND VALUATION FORM FOR APARTMENTS VALUATION FORM FOR OFFICES VALUATION FORM FOR STORESInformation on the Comparative Method for real estate appraisal
The Comparative method of property valuation is the most wide spread and simple methodology used in Greece for the valuation of housing values. The comparative valuation method can be used in combination with other methods for the final calculation of value but also as a tool to control the outcome of the valuation process.
The comparative method of valuation is used as the basis for all valuation methods; it does not use difficult financial models but simple mathematical operations and critical thinking.
The comparative method of valuation is based on “the valuation of the “market value” of a property, or its rent on the “market rent”, by comparing it with 'similar' properties in relation to the features which affect their value". Therefore, a comparative prerequisite is that comparative data be available. These items relate to transactions already made or quoted for other properties with similar characteristics to the estimated making the appropriate adjustments”
In the Comparative Method of valuation, comparisons are made between properties that are similar but never identical. In the Comparative Method there is the basic assumption that each property is unique and heterogeneous. The reasons for its uniqueness, when applying the comparative method, are related to:
- The Location
- Its physical condition
- The Contracts
- The Purpose / Time
The use of the comparative method as the appropriate one for the valuation of properties requires a competitive market and the data to be valid and reliable.
Steps of application of the comparative approach methodology
The basic steps of applying the Comparative method of valuation are the following:
- Recognition of the specific criteria that affect the value of the property.
- Gathering and spotted properties with similar characteristics, in real estate market, available for sale.
- Define appropriate comparative creteria
- Organize and analyze the data in a table by applying the necessary adjustments
- Determination of market value.
The evaluation of the criteria for comparison in the comparative method and the application of the necessary adjustments for the reduction in the characteristics of the estimator are at the discretion of the evaluator, however there are some key factors that influence its value.
Factors that affect the property value in the comparative method of valuation
The factors that influence the value of a property in the comparative method are numerous. These factors influence the market condition, form the market competition, affect the property supply and demand, and shape a specific market value for the property.
The factors that shape the value of the property in the comparative method of valuation are mainly:
- Physical factors: location, access, orientation, scenery
- Construction Factors: Aging, Maintenance, Construction, Surroundings etc.
- Planning factors: Building conditions, land use, NOK
- Legal factors: Ownership, horizontal - vertical ownership etc.
Comparative elements by type and use in the comparative method
The basic comparisons by type and use of the property in the comparative method of valuation are divided into:
- Plot / Landplot
- Residential (Apartments / Mezonete)
- Offices
- Shops / Commercials
- Plots with remaining building coefficient
- Hotels / Accommodations
Data analysis and organization - Comparative details by the comparative method
In the Comparative method of valuation the mathematical operations applied refer to the comparisons of the comparative data to the estimated. When the estimated advantages, then the adjustment factor in the comparator is incremental (+) while it is disadvantaged the adjustment factor is decreasing (-).
In the comparative method in the process of adjustments the warehouses and parking lots, the monitors, are calculated at their final total value, while arbitrary spaces are taken into account in accordance with applicable law. All these factors are shaped according to the data and conditions of each market.
Plot / Landplot
| COMPARISON CRITERIA | ADJUSTMENTS |
|---|---|
| Building coefficient | - |
| In / Out Plan | - |
| Permitted Land Use | - |
| Corner or not | ±5% up to 10% |
| Surface size | - |
| Road width <6μ | -20% |
| Facade/ Depth : Depth >3times of the face | -50% |
| Right of the way | -30% |
| Road commercialization | ±5% up to 10% |
Specifically in land plots: water supply, electricity, fence, soil morphology, distance from settlement, in industrial area zone
Residential / Apartment
| COMPARISON CRITERIA | ADJUSTMENTS |
|---|---|
| Age / Antiquity | ±1,0%, -±2,0% | (1-α)t, t=years, α=2% |
| Quality of construction | ±5% up to ±10% |
| Refurbished | ±10% up to ±15% |
| Floor | ±2% each floor, last floor ±5%/ Groundfloor -10 up to -15% |
| Orientation | ±5% |
| Corner or not | ±5% up to 10% |
| Interior / Facade | ±10% up to ±15% |
| Without elevator above B’floor | -10% |
| Without Heating | -5% |
| Additional facilities | Parking, Storage, Pool, garden etc |
In the residential and maisonetes, according to the comparative method of valuation, we also take into account the size of the plot, the configuration of the surrounding area, as well as the proximity to the adjacent plots, access etc.
Offices
| COMPARISON CRITERIA | ADJUSTMENTS |
|---|---|
| Age / Antiquity | ±1,0%, -±2,0% | (1-α)t, t=years, α=2% |
| Quality of construction | ±5%έως ±10% |
| Refurbished | ±10% up to ±15% |
| Surface size | ±5% up to ±10% |
| Orientation | ±5% |
| Corner or not | ±5% |
| Interior / Facade | ±5% |
| Location– Projection | ±10%up to ±15% |
| Road Commercialization | ±5% up to ±15% |
| Additional facilities | Parking, Storage, WC |
Shop / Commercial
| COMPARISON CRITERIA | ADJUSTMENTS |
|---|---|
| Age / Antiquity | ±1,0%, -±1,5% | (1-α)t, t=έτη, α=2% |
| Quality of construction | ±5% up to ±10% |
| Refurbished | ±10% up to ±15% |
| Surface size | ±5% up to ±10% |
| Orientation | ±5% |
| Corner or not | ±5% |
| Interior condition | ±15% |
| Interior / Facade | ±5% |
| Location– Projection | ±10% up to±15% |
| Road Commercialization | ±5% up to ±15% |
| Additional facilities | Parking, Storage, WC |
| Square meters adjustments | |
| Underground storage space | 20% |
| Underground commercial space | 30% - 40% |
| Mezzanine | 40% |
| A’ Floor shop | 50% |
Plot with residual coefficient
The categories of landplot with unfinished building or with buildings with residual coefficient of construction are difficult to be studied by the comparative method of valuation, as it is difficult to find similar comparators for investigation in the same area and at the same time.
The types used in the comparative method of valuation for this category of plots are:
Building Balance / Building Factor = Proportional Plot Area and then:
Proportional Plot Area x Plot Market Value (€ / sqm) = Building Balance Value
Hotels / Accomodation
The same problem is encountered in hotel and tourist accommodation, as it is rare to find tourist facilities with similar characteristics in the same area in order to apply the comparative method of valuation.
The above criteria are some guidelines from the Hellenic Association of Valuers (SEKE) regarding the criteria and coefficients that can be applied to the comparative valuation method. However, each property is unique and may have some features to compare that must be identified and taken into consideration by the valuer.
Property commitments based on Greek standards
European valuation standards set out general rules and guidelines applicable to all participating countries. However, each country has specifics and additional commitments based on existing laws and planning data. Therefore, according to the comparative method of valuation, in the Greek region, various factors appear to affect the value of a property.
The European standards outline some general guidelines for further research on the valuer and a better approach to each property belonging to these specific categories. The factors that influence and form the value of the property in Greece in the comparative method of the valuation are:
- Town planning commitments (within the city plan, spatial plans, General building guidelines, NOK etc.)
- Restrictions based on planning provisions
- Special Protected Areas (PEP) (forests, Agialos, beach, NATURA, wetlands, archeology)
A phenomenon that is often encountered in Greek region and is one of the key factors affecting the value of a property, in the comparative method of valuation, is arbitrary construction. The valuer, when applying the comparative method of valuation, in order to determine the final market value, should review the necessary documents and study the relevant laws to determine the legality or potential arbitrary construction found on the property.
Listed buildings are a special category of property whose market value determination requires a particular approach to the comparative method of valuation. These buildings are characterized by specific institutional frameworks related to restrictions on construction and use. They are buildings of particular interest, residential, professional and tourist. When evaluating the value of a listed building in the comparative method of valuation, the valuer has to check all the parameters derived from it (characterization, protection status, face preservation, etc.) to determine its final market value.
Conclusions
As much as the comparative valuation method is a simple and understandable process, the valuer must be experienced and capable and pay attention to some of the key factors that are critical to a reliable export of final market value.
The main advantages of the comparative method of valuation are:
- Simple to understand with simple methodology
- Reliable comparative method when the market is stable and active.
- Use as a basis for all other valuation methods.
- Use as a junction when other valuation methods are used.
- It is used worldwide
The main disadvantages of the comparative method of valuation are:
- Assumes the existence of a liquid real estate market
- Requires access to sales data of the real estate market
- It is not always possible to find the appropriate comparable data.
- Property is a heterogeneous product and each piece of land is unique.
- It is of little use in a poor market with few transactions and relatively little activity
- It is difficult for an estimator to be objective when quantifying adjustments.
The Comparative method of valuation in accordance with the other methods of valuations
The comparative valuation method can be used as an adjunct to other methods as well as a tool for checking market value through other methods.
In the Depreciated Replacement Cost (DRC) method, the comparative method is used to calculate the value of the land while in the Residual method, the comparative method is used to calculate the proceeds from the sale of the property after forming the price of the new properties. The comparative method of valuation is also used to calculate the fair rent of a property by analyzing rents of similar leases in the estimated range.
There is no specific rule defining the choice of a method that is appropriate to form the market value of each property. This is because not all methods can be applied to all properties. When selecting the comparative method of valuation requires the valuer to have a good knowledge of the real estate market, to be experienced and skills sufficient to select the most representative comparables and to make the relevant adjustments.