Sales Comparison and Income Approach Applications
Sales comparison in practice
Select comparables that are similar, recent, and verified. Adjust in this order: property rights, financing, conditions of sale, market conditions (time), then physical characteristics. Use paired sales to derive adjustments; use gross adjustment and net adjustment screens - comparables with excessive gross adjustments (often over 15–25%) should be given less weight or discarded.
Trap: applying a dollar adjustment to the wrong property or reversing the sign. If the comparable is superior, subtract from the comparable.
Income approach in practice
Distinguish gross income multiplier (GRM = price ÷ gross monthly rent) from overall capitalization rate (NOI ÷ price). For a subject with monthly rent of $2,000 and a GRM of 150, value = $300,000.
Know gross rent multiplier, potential gross income, vacancy and collection loss, effective gross income, operating expenses, and reserves for replacement. Distinguish leased fee (owner's interest subject to a lease), leasehold (tenant's interest), and fee simple. Above-market or below-market leases create leasehold or leased-fee premiums - a favorite exam trap.
Reconciliation
Weight approaches based on reliability and data quality, not simple averaging. State why one approach dominates.
Worked example
Comparable sold for $400,000; it is superior by a $10,000 feature and sold 6 months earlier when values were 3% lower. Time adjust: $400,000 × 1.03 = $412,000. Subtract superior feature: $412,000 − $10,000 = $402,000 indicated value.