# Comparative Value Method: Advantages, disadvantages, guidelines and valuation law

Comparative value method – What is the comparative value method? When is the comparative value method used for real estate? What criteria play a role in the comparative value procedure for real estate? The comparative value method compares your property with similar properties. It is used in particular for the sale of condominiums and houses. The comparative value can also be determined for undeveloped land.

## Comparative value method: Simply explained

Only properties in similar locations and with a comparable layout are considered in the comparison. The properties included in the valuation should come from the immediate vicinity of the residential property.

To determine the comparative value, the purchase price achieved by the comparative property is divided by its area. The determined price per square metre of the sold property is apportioned to your property to be valued.

### Calculation example: Comparative value

For the calculation of the comparative property value, we put two properties in relation to each other, for example. Using the information on purchase price and total living space, we can then calculate the proportional purchase price for your property.

Details of the property being valued:

• Area of the property to be valued: 200 square meters
• Purchase price of the property to be valued: ?

Details of the comparative property:

• Area of the comparative property: 100 square meters
• Purchase price of comparative property: 300,000 euros

### Price per square meter

Calculating the ratio of price per square metre of the comparative property provides the perfect basis for concluding the appropriate purchase price for the property being valued under the same conditions. The two purchase prices provide information about the value of your property and thus form a good comparison value.

• Price per square metre of the comparable property = 300,000 Euro / 100 sqm = 3,000 Euro per sqm

### Purchase price based on the price per square metre

• Purchase price of the property to be valued = 3,000 Euro * 200 sqm = 600,000 Euro

The comparative value method is considered to be particularly realistic. It is frequently used to determine the value of properties, as the locations are relatively comparable from region to region.

For residential properties, it is also the preferred method for determining a realistic property price. However, if the comparative value is determined for a developed property, further corrections may need to be made. Additional features can increase the probable purchase price, structural damage or a renovation backlog can reduce the determined sales price.

The comparative value method is an extremely accurate reflection of the price that can be achieved on the market.

## Valuation for the sale of real estate

All important information about the valuation of real estate sales summarized for you: Valuing a property.

### Income approach: Breakdown of market value & building income value

The capitalised earnings value method divides the property into the market value of the land and the building income value.

Land value interest = 7 percent * 100,000 euros = 7,000 euros

Building income value = 5,600 Euro * 12.50 (multiplier) = 70,000 Euro

This includes rental income, maintenance costs and costs for managing the land and building. Accordingly, the rental income less the management costs and the land value including its interest are compared.

### Material value method: Value for the new construction of a property

The calculation first uses the standard land value to determine the market value of the land, then the real value of the building is added.

The real value of the building is calculated on the basis of the building’s production costs less any reductions for age. The real value of the land (market value of the land) and the real value of the building are added together and multiplied by a real value factor.

Value in kind = (100,000 Euro + 150,000 Euro) * 0.5 = 125,000 Euro

The calculation of the asset value factor is based on the building type, the preliminary asset value and the standard land value. The total tangible asset value determined in this way indicates the financial resources that would be required to rebuild the property.

### Value appraisal (costs)

Who prepares appraisals for real estate? What does a house appraiser cost? What does an appraiser for old buildings cost? Unless legal regulations require the appointment of an expert, a real estate appraisal will provide you with a realistic valuation of your property in the regional and national market. We provide timely and accurate valuations of land, residential and commercial properties.

However, if the valuation is to be presented in court, for example in the case of a divorce, experts must be consulted for a fee. The residential or rental property is inspected on site. As a rule, both a written and a digital copy of the appraisal are issued.

• Valuation report