Comparable sale

A recent recorded transaction in a similar nearby property, used as evidence of what the subject property is worth.

Example

Three sales at 3,743.59, 3,750.00 and 3,774.65 per square metre, closing 4, 7 and 11 months ago, give a mean of 3,756.08 and imply 300,486.34 for an 80 square metre subject.

Important

The recorded price carries no reason. A sale forced by a deadline and a sale to a neighbour who wanted the adjoining plot sit in the data set as identical evidence, and a sample of three cannot average one of them away.

Related terms

• Appraisal — A professional estimate of what a property would sell for, reconciling comparable sales with a capitalisation of the income and adjusting for what the comparables did not match.
• Capitalisation rate — The required annual return used to convert an income stream into a price, most commonly in property. Value is net operating income divided by the rate.
• Price discovery — The continuous process by which buyers and sellers transacting produce a current market price for an asset.

Lessons that explain it

• A price is a guess between two auction estimates until a hammer actually falls — There is no continuous market here - only comparable sales, an appraiser's estimate, and an auction reserve that can fail to be met. The gap between what an item is 'worth' and what it actually sells for can be wide, and it is measured only at the moment of an actual transaction. (12 min)
• Appraising one item: authenticate before you price, not after — Five checks on one specific opportunity, starting with proof the object is genuinely what it claims to be - because a confident price on a fake or misattributed item is not a discount, it is a total loss waiting for a buyer to notice. (13 min)
• No closing bell: comparables, appraisal and the cap rate — Nothing quotes this asset. Its price comes from three negotiated sales that happened months ago, adjusted by somebody's judgement - and from an income lens that is more honest and much less popular. (11 min)
• Appraising one property: the numbers, the condition, the tenant and the exit — Seven checks on one specific building. The two that decide most outcomes - the deduction list and whether the income covers the borrowing - are the two that never appear in a listing. (14 min)

All 578 terms in the Investing glossary