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PREPARING A LOGICAL COMPARATIVE MARKET ANALYSIS USING THE DIRECT SALES APPROACH

As noted earlier, the first step in the sales comparison approach is to locate at least three similar sales that have recently closed. It is imperative that the sale be closed (not a pending sale contingent upon mortgage financing) and the sale must be at arms-length.

ARMS-LENGTH: An arm's-length transaction is a sale that was offered on the open and competitive marketplace for a typical period of time which had no unusual circumstances affecting the transaction and to which the parties were not under duress to buy or sell. A further understanding of an arm's-length sale includes that all parties to the transaction (buyers & sellers) are aware of the property's positive and negative attributes (such as a snow covered roof that may be in dire need of repair but hidden to the typical buyer).

After selecting the sales you wish to use in your analysis, confirm with the listing office or assessor's office that the sale was indeed sold at "arm's-length" and is definitely closed.

Many real estate agencies utilize some kind of form when preparing a comparative market analysis. Most forms or computer programs list closed sales at the top third of the form, current listings in the middle section and expired listings at the bottom third. Whatever order or system you use, the following section will describe how to adjust closed sales so as to make them similar to the subject property.

QUESTIONS:

1. Give three examples of an "arms-length" transaction (be very descriptive).

2. Why do you think a recently closed sale is so important?

3. Name three ways to determine if a property you want to use in your market analysis is actually closed or not?

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