direct (paired)comparison

           david hornby PhD LlB FAPI

Direct comparison is the first method considered by the valuer and used whenever possible as it is the simplest and most direct method. For these reasons it is the most reliable and has least error. It is used when the subject and sale properties are nearly identical. That is, very little adjustment is required to the sale price to make it comparable to the subject property. It is the best method for the valuation of:


ADVANTAGES

Because very little adjustment or calculation is required, it is the most reliable method of valuation. Almost all the important variables affecting value are common to the two properties and therefore, there is no need to try to identify, isolate, and value each variable independently. These attributes substantially reduce error compared with other methods.

DISADVANTAGES

Except for the examples above, there are few "nearly identical" sales in practice. Therefore, too great an adjustment to the sale price is required for the method to be reliable in other situations. When this is the case, one of the other methods of valuation is used instead.

How much adjustment is required before direct comparison becomes unreliable is a moot point. A commonly used figure is 40%. However, in the Seatainer's case (1981) concerning land at Glebe Island, Sydney, the Supreme Court of NSW accepted and preferred a sale of land at Port Botany (the other side of Sydney) requiring an adjustment of more than 100%. Under the Seatainer's rule, it is difficult to see any situation where there are no comparable sales !


THE DIRECT COMPARISON IN LINE METHOD

The valuer may have to value a property; in line. That is, a property with a number of blocks, houses or units that although they could have been bought separately, are being bought "in line". That is, the buyer is making a "bulk" buy.

EXAMPLE

Suppose the 5 building blocks in the diagram above are to be sold together to the one purchaser. In such a case, it is usual for the vendor to sell the blocks with a "bulk buy" or in line discount as it saves the seller time and money and lowers the risks of sale. The in line discount can be analyzed from comparable in line sales using direct comparison. There are 4 steps in the method: .

EXAMPLE OF THE DIRECT COMPARISON IN LINE" METHOD - HOME UNITS


$
12 * 2 bedrooms units @ $85000 each =
1 020 000
20 * 3 bedrooms units @$129000 each =
2 580 000
GROSS REALIZATION:
3 600 000
Less legal & commission on sale @ 6%
(216 000)
NET REALIZATION:
3 384 000
AFTER PROFIT & RISK @ 20% $3 384 000 * 100/(100+20) = 2 820 000
AFTER LEGAL & STAMP DUTY  ON PURCHASE @ 3%:  $2 820 000 * 100/(100+3) =
2 737 786
MARKET VALUE: say
$2 740 000