Valuation and Comparative Market Analysis
Three approaches, one reconciliation
Value is shaped by the principles of substitution, contribution, conformity, progression and regression, anticipation, and highest and best use. The sales comparison approach dominates for residential property; the cost approach (replacement cost less depreciation plus land) suits new or special-purpose buildings; the income approach (direct capitalization, gross rent multiplier) suits investment property.
Adjustments. Adjust the comparables, never the subject. If a comparable is superior to the subject, subtract from its price; if inferior, add. Make the largest and most defensible adjustments first - market conditions/time, location, then size, then amenities. A licensee should weight comparables by similarity and recency and reconcile to a range, not a single false-precision number.
CMA versus appraisal. A comparative market analysis or broker price opinion for listing or buying purposes is within a licensee's scope when presented as an opinion of price, not a certified appraisal. Illinois licensees may not perform appraisals or use appraisal terminology that implies certification; appraisers are separately licensed and follow USPAP.
Market conditions. Months of inventory, absorption rate, days on market, and list-to-sale price ratios explain whether the market favors buyers or sellers.
Worked example: a comparable closed at $310,000. It has an extra half bath the subject lacks (worth $8,000) and the market has risen 2% since closing. Subtract the bath: $302,000; add for time: about $6,040; adjusted value roughly $308,000.
Traps: reversed adjustment direction, using asking prices instead of closed sales, and confusing a CMA with an appraisal. Also remember capitalization rate and value move in opposite directions - a lower cap rate produces a higher value for the same income.