Comparable sales report: how to use comparable sales to price a property

Every credible opinion of what a house is worth rests on the same foundation: comparable sales. Valuers use them, banks rely on them, and good agents build their pricing around them. A comparable sales report gathers that evidence for one property so you can see what the market has actually paid for homes like it.

Used well, it is the strongest tool a buyer or seller has. Used carelessly, it produces a confident wrong answer.

What comparable sales are

A comparable sale — a "comp" — is a recent registered sale of a property similar to the one being assessed, in the same market. The reasoning is simple: a buyer will not pay much more for a property than the price of a similar one available nearby.

The evidence comes from registered transfers, which are public record. See property sales history.

What a comparable sales report contains

A useful report gives, for each comparable:

• the location and how far it is from the subject property;
• the date of the sale;
• the price;
• the erf size;
• the type of property.

Alongside the individual sales, suburb-level statistics give context: how many properties sold, and the range and typical level of prices.

On checkproperty.co.za, the property report for a Johannesburg erf includes its own sales history, comparable sales nearby and suburb statistics, compiled from public sources.

Choosing good comparables

Not every nearby sale is a comparable. Rank candidates on four tests.

1. Location

The closer the better. The same street beats the same suburb; the same suburb beats the next one. In Johannesburg, value can change sharply across a main road, a school catchment boundary or the edge of a security enclosure.

2. Time

Recent sales reflect the current market. Sales from the past six to twelve months are best. Older sales can be used, but with caution and an allowance for market movement.

3. Type

Freehold with freehold. Sectional title with sectional title. An estate house with estate houses. Mixing types gives nonsense. See freehold versus sectional title.

4. Size and characteristics

Similar erf size, similar house size, similar accommodation and condition, so far as you can establish them.

A handful of strong comparables is worth more than twenty weak ones.

Adjusting for differences

No two properties are identical. The art lies in adjusting each comparable for how it differs from the subject.

Work in the direction of the subject:

• if the comparable is better than the subject in some respect, adjust its price down;
• if it is worse, adjust up.

Typical adjustments:

• Erf size. A larger stand is worth more, but not proportionately: the second 500 m² is worth less than the first.
• House size and accommodation. An extra bedroom or bathroom, a cottage, a garage.
• Condition. Renovated versus original.
• Position. A quiet cul-de-sac versus a busy road; a view; proximity to a nuisance.
• Security. Inside or outside a boomed area or estate.
• Time. Market movement since the sale.

Registered data gives you price, date and land size. It does not tell you condition or finishes, so some adjustments rely on what you can see from the street, in aerial imagery or in old listings. See reading aerial imagery history.

After adjustment, the comparables should cluster into a range. That range is your evidence of value.

Price per square metre: useful and dangerous

Dividing price by erf size gives a quick way to compare. It is helpful for:

• vacant land;
• development sites, where the land is what is being bought;
• a sanity check across similar stands.

It misleads when:

• the houses differ greatly in size or quality;
• the erven differ greatly in size, because rate per square metre falls as size rises;
• the comparison crosses property types.

Use it as one lens, not the conclusion.

Sales to exclude

Leave these out, or treat them with great care:

• family and related-party transfers at below-market prices;
• sales in execution and other distressed sales;
• transfers of several properties in one deed;
• sales of land that was later built on;
• properties that have since been subdivided or consolidated.

One bad comparable can drag an average a long way.

Comparable sales for different purposes

Buying

Establish the range before you offer. If the asking price sits above every adjusted comparable, ask the agent what justifies it.

Selling

Price within the evidence. An agent's pricing recommendation should come with comparables; if it does not, ask for them.

Investing

Use comparables for the purchase price and, separately, rental evidence for the income. See rental yield, the honest way.

Developing

Two sets are needed: comparable land sales for the site, and comparable sales of finished units for the end value. See development feasibility.

Objecting to a municipal valuation

Comparable sales around the valuation date are the core of an objection. See objecting to a municipal valuation.

The limits of comparable sales

• Thin markets. In suburbs with few sales, or for unusual properties, good comparables may not exist.
• Lag. Registered sales trail the market by a few months.
• Hidden detail. The registry does not record condition.
• Changing markets. In a fast-moving market, last year's sales can mislead.

Where the evidence is thin, widen the search area gradually, extend the period, and hold your conclusion more loosely.

Comparable sales report versus valuation

A comparable sales report is evidence. A valuation is a professional opinion built on that evidence, signed by a registered valuer. Banks and courts require the second. For most buying and selling decisions, understanding the first is what you need. See property valuation reports.

Frequently asked questions

How many comparables do I need? Three to six strong ones are usually enough.

Can I use asking prices as comparables? No. Asking prices show what sellers hope for. Use registered sales.

What if there are no recent sales nearby? Extend to adjoining suburbs of similar character, or further back in time, and allow for the differences.

The bottom line

Comparable sales are the evidence behind any sound property price. Choose them by location, time, type and size; adjust them towards the subject; discard the distorted ones; and work with the range that remains.

Get comparable sales for a property.

This is general information, not valuation advice. A comparable sales report is not a formal valuation; consult a registered valuer where one is required.