Selecting Comparison Examples and its Effects on Appraisal

Hyeyeon Ho and Jun Hyung Kim

ERES from European Real Estate Society (ERES)

Abstract: Among the three appraisal methods, the sales comparison approach is based on the principle of marketability. It determines the value of the subject property by comparing and adjusting its value-forming factors, circumstances, and the timing of the subject property with reference to comparable properties that are identical or similar to the subject property. The sales comparison approach is commonly used in Korea, as well as in other countries, for the valuation of residential properties. Since the sales comparison approach relies upon examples of previous sales transactions, it is compelling as an empirical appraisal method, but there is the disadvantage of the possibility of evaluator subjectivity in the selection of examples and factor comparison. Furthermore, this can lead to the possibility of price distortion resulting from agreements between the relevant parties, but currently there are no objective standards to control this. The purpose of this study is to measure the effects of the selection methods on the property valuations. Since the valuation amount may differ depending on the selected comparison examples, there is a need to research on selecting examples based on analysis of previous sales transactions. In this study, previous apartment evaluations will be used as a precedent to analyze differences in the property valuations of comparable examples according to the respective selection methods, and their intent by the parties involved. Previous apartment appraisals from Seoul, Korea in 2022 will be used to examine this. This report will demonstrate various methods to consider similarity when selecting comparison examples, such as floor area, distance from the subject property, transaction date and unit size, and propose the possible implications for the appraisal system in Korea.

Keywords: Appraisal; Sales Comparison Approach; Selecting Comparison Examples; Value-forming Factors (search for similar items in EconPapers)
JEL-codes: R3 (search for similar items in EconPapers)
Date: 2023-01-01
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