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If you are considering buying or selling a property, you would do well to assess the value of the property for yourself before or after consulting with an agent. There are three methods you can choose from: the income method, the cost method and the method of comparable selling prices. The method of comparable selling prices is dealt with here as most people are interested in the price of a house. Read on to find out more.

Comparing selling prices

The method of comparable selling prices is also referred to as the market approach. It looks at the price of a property in the context of the property market, consisting as it does of buyers, sellers and agents. The price or market value of a property is often a reflection of what people are prepared to pay at a particular time.

The principle of substitution is used for this approach where it is assumed that you will not be prepared to pay more for a property than you would for a very similar property. When looking at the price of a comparable property that recently sold, several factors should be considered.

What to consider when comparing selling prices

In order to compare apples with apples, it’s important to note if the sale price of the comparable property was achieved in similar market conditions. You can do this by checking on the date of the sales transaction.

Once you have the date, you can investigate the bona fide status of the sale. What you want to know is that there was an equal bargaining position between the buyer and seller. Liquidation sales, sales between family members and an estate sale would not qualify.

Then check if anything was sold with the property and identify whether the buyer paid cash or not.

Once you have identified two properties that are comparable (based on these criteria), you will be in a better position to calculate the market value of the property in question. This market value signifies the maximum price that you should be buying or selling at, considering current market conditions.

Tags: Finances