Also known as the Comparable method, or the Inferred Analysis of property value, this method valuates a property’s estimated worth by taking into cognizance the value of other properties in proximity to the subject property. This means that by examining the prices of properties that are similar to the subject property and are within the subject property’s neighbourhood, an accurate estimate of the valuated property’s financial worth can be attained.
In order for an accurate market value to be achieved via the comparative method, the valuator must first collect relevant data concerning neighbouring properties that have same characteristics as the subject property. The relevant data required for using the comparative method successfully include;
Data that falls under this category has to do with property features like; location, size, condition of the property, availability of utilities, regulations concerning the property and its building etc.
Data under this category is primarily related to information concerning the past sale(s) of the property in question. For example; how quick or slow it is to transact real estate in the subject property’s location, dates of past transactions, payment means, etc.
In order to get the best results from using the comparative method, it is best to visit each property in person to inspect and collect relevant data concerning them. But because having to go to each property will consume a lot of resources, transaction databases can be used to get the information that’s needed concerning the neighbouring properties.
Without data from transaction databases or from personally inspecting and researching the neighbouring properties, the comparative method of valuation will be unable to deliver an accurate market estimate of the subject property’s value. Also, the comparative method tends to provide more accurate results when;
This method of valuation occurs by a valuator using an uncomplicated calculation to determine an undeveloped land or underdeveloped property’s actual value. It is mostly used when a property developer or an aspiring one is trying to determine if a property is ideal for development purposes, redevelopment purposes, or if it will be better of used for a bare land purpose.
Once the valuator has effectively made use of the Residual method, a realistic estimate of the true value of a land or property will be available. This property valuation method will be useful in helping a property developer decide how best to utilize the property in question. It’ll also help the property developer decide expenditure limits that should be assigned to develop the property in order to gain the most value. That is, using the residual method, a property owner will be able to decide how little or how much to spend developing a property in order to make the most profit from it.
When calculating property value with the Residual method, gross development value, property developers’ profit, and building costs and fees all play a vital role.
What sets a residential property apart from a commercial property is briefly discussed below;
The lease period for residential and commercial properties tend to differ. The average residential building’s lease lasts for about 1-2 years unlike with commercial properties.