What it means
The starting point is a clear definition of the subject and the value being estimated, because a small vacant office, leased shop and warehouse have different buyers and economics. A valuer searches for transactions that buyers of that subject would reasonably consider alternatives, and recency and proximity help but do not make a sale comparable by themselves.
A neighbouring property with a different lease, fit-out or legal interest can require a substantial adjustment. Verify each transaction where possible by confirming the price, date, area, condition, incentives and whether buyer and seller acted at arm's length, since a special relationship or distress sale may not reflect normal market behaviour.
Asking prices can show seller expectations but are not evidence that a buyer paid the amount. In a thin market, older or more distant sales may be used with transparent limitations rather than presented as perfect matches.
Adjust comparable prices to the subject's characteristics: if the comparable is superior on a relevant feature, adjust its price downward to indicate what it might have sold for if it resembled the subject, and if inferior, adjust upward. Some adjustments use per-square-metre rates, while others account for a feature or market movement, and each needs evidence and judgment; blindly adding the full construction cost of an extra feature can overstate what buyers actually pay for it.
After adjustments, weigh the strongest comparables, since a sale in the same building last month may deserve more weight than a distant older sale with many uncertain changes. Three weak comparables do not become strong evidence simply by averaging them, and income-producing property may also be assessed with an income approach while unusual buildings may need cost evidence.
Reconcile methods where appropriate, consider the dispersion of adjusted prices and explain why a chosen value fits. For a business buying premises, the approach helps challenge a seller's claim and frame an offer, but transaction costs, financing, zoning, title and fit-out needs can change the total decision.
A market value estimate is not a guarantee of future resale price or a lender's approved loan amount, so a qualified local valuer should examine property-specific rights and market data when the result will drive a real purchase or secured financing. Use a valuation date, document sources and the reasons for each adjustment, and report greater uncertainty when few credible transactions exist rather than manufacture precision.
In practice
Real-world examples.
Example
A valuer compares an office unit with recent sales in the same building after checking lease and condition. Two sales are close in size and date, so they receive the most weight. The report lists each adjustment and the evidence behind it.
Example
A home comparable with a superior renovation is adjusted downward to resemble the subject. The valuer estimates what buyers pay for the renovation from other sales rather than using its build cost. The adjusted price then sits in line with similar homes.
Example
A warehouse buyer uses verified sales evidence and flags a shortage of close matches. The valuer widens the search to older sales and states the extra uncertainty. The buyer uses the range, not a single figure, when negotiating.
Formula
Calculation
Adjusted comparable price = verified sale price + or - supported adjustments.
Unit rate = adjusted comparable price / comparable area.
Indicated subject value = unit rate x subject area.
Worked example: a fictional 100-square-metre office sold for $1,500,000, or $15,000 per square metre. At that rate, a 120-square-metre subject suggests $1,800,000 before adjustments. Now adjust: the comparable has a superior fit-out worth $60,000, so subtract $60,000, and it sold six months ago in a market that has risen 2%, so add 2% of $1,500,000 = $30,000. The adjusted price is $1,500,000 - $60,000 + $30,000 = $1,470,000, a rate of $14,700 per square metre, so the 120-square-metre subject indicates $14,700 x 120 = $1,764,000. The estimate still assumes size scales linearly, so a valuer must test location, condition, date and size effects against more evidence.Case study
Seen in the real world.
This illustrative and entirely fictional example follows Summit Dental, an invented practice offered a clinic unit at $2.6 million. The seller called it a bargain, but the buyers hired a local adviser to review actual transactions rather than advertisements. Four verified sales were broadly comparable but differed in size and fit-out, and the adviser explained adjustments and gave greater weight to two recent nearby sales. The reconciled fictional indication was around $2.3 million, with uncertainty because clinic units were scarce.
Summit also considered conversion costs and financing. In the invented outcome it negotiated to $2.35 million, a decision that depended on its own plans as well as market evidence. The case shows the method's use in negotiation, not a universal percentage discount from asking price.
Watch out
Common mistakes.
- Treating advertised asking prices as completed comparable transactions.
- Adjusting for every visible difference without evidence buyers value it.
- Averaging several weak sales and presenting the result as precise.
Questions
People also ask.
What is the sales comparison approach?
A valuation method using verified comparable sales with supported adjustments.
What makes a good comparable?
Similar buyer appeal and legal interest, with reliable price, date and property details.
When is it less reliable?
When the subject is unusual or few comparable transactions can be verified.
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