In standard appraisal practice, there are three approaches or methods to arrive at value indications; the Cost Approach, the Income Approach, and the Direct Comparison Approach. A value estimate can be estimated from any or all of these approaches as deemed appropriate, and reconciled into a Final Value Estimate. For non-income producing residential properties the Cost and Direct Comparison Approaches are usually considered most relevant (the Income Approach is omitted since local residential properties of one or two living units do not sell based upon their capacity to generate rental revenue). The most relevant is the Direct Comparison Approach, as it attempts to illustrate as clearly as possible the market value based upon recent and similar sales activity in local real estate transactions. The Cost Approach has inherent problems, especially for older homes, in that an accurate estimate of all forms of depreciation is nearly impossible to determine, as well as the fact that there may be a lack of recent and similar vacant land sales needed to determine the value of the land portion. In a newer home it may be reasonable indication of the upper limit of value.
With reference to the Direct Comparison Approach in the report, the subject property is compared to as many sales of homes of similar age, location and condition as is possible from recent market data. The appraiser has researched and investigated all known transactions on the recent market from Multiple Listings (MLS) data, the BC Assessment electronic database, as well as other known private sales. Variations between the comparable properties and the subject property are inevitable; these differences are applied to the subject property by means of “adjustments” to account for the differences such as building size, location, age/condition, garages, decks, etc. Adjustments are only made when, in the opinion and judgement of the appraiser, the market would react measurably to the difference between the subject and the sale under comparison. The amount of adjustment is analyzed from comparative sales data. Every effort is made to analyze comparable sales data which has occurred within six months previous of the appraisal date. Sales are considered previous to this time frame only when there is a lack of more recent sales comparables. If the time frame of sales has been expanded beyond 6 months, it may be due to these sales being the most comparable to the subject property and to provide the most reliable indicators or value; this is a common and necessary practice in the small market. Lack of more current comparable sales does not necessarily mean that adverse market conditions exist.
Ideally adjustments in the Direct Comparison Approach will not exceed 10% per item, or 25% cumulative + or – adjustments. The best comparables have been selected based upon recent date of sale, most similar location, size, age, condition, quality/design, and miscellaneous features. However, if adjustments exceed the above-mentioned guidelines, it is due to at least one of the parameters of comparison differing significantly from the subject property. Even with the careful selection of the most comparable sales data, the heterogeneous nature of the small local market dictates that such variations and large adjustments are commonplace, especially when the subject property is atypical, or if there has been a low volume of recent comparable sales in the neighbourhood or amongst similar neighbourhoods. While similar comparable sales are sought, they are infrequently found, particularly in small towns. With reasonable and appropriate market based adjustments, the market comparables can accurately reflect market value estimate for the subject property. Properties with extraordinary features may require large individual line adjustments, but if they are accurate and properly abstracted from the marketplace, the resulting value indication need be no less accurate than instances where only small adjustments are required