Comparable sales are routinely utilized to develop an opinion of value using the sales comparison approach, one of the three primary approaches to valuing real estate. (The two other primary approaches are the cost approach and income approach.) In some cases, the gross sales price is utilized to develop an opinion of value for the subject property. However, the sales price is more often converted to a unit of measure such as price per square foot or per unit sales price. This article overviews the units of measure utilized for different types of property.
Comparable sales are typically converted to a per square foot unit of measure. This is typically used for homes, condominiums, town homes, duplexes, office buildings, retail, industrial and apartments. For homes, the per square foot unit of measure is typically based upon the living area (based on external measurements) and does not include areas not air-conditioned such as the garage and porches. For commercial properties and apartments, the per square foot value is typically based on the net rentable square feet instead of the gross square feet (which includes common areas). In some cases based on the judgment of the analyst or local practice, the evaluation focuses more on the sales price per square foot of gross building area.
Apartments are often evaluated on the sales price per unit instead of the sales price per square foot. In many cases, the sales price per square foot and per unit are both considered. For apartments with above average unit sizes, the sales price per unit tends to be higher and the sales price per square foot tends to be lower. The converse is true for apartments with below average size units.
Following are examples of property types that utilize different units of measure:
Car washes -- number of bays
Movie theaters -- number of seats and / or gross building area
Auto service garages -- number of service bays and / or square feet
Oil change facilities -- number of service bays and / or square feet
Churches -- number of seats and / or square feet
Golf courses -- number of holes
Self storage -- number of units and / or square feet
Land ? square feet, acres or frontage feet
The appraiser or analyst selects the appropriate unit of measure when analyzing comparable sales. In addition to customary local practice, discussions with investors, brokers and appraisers can provide meaningful insights into the most effective unit of measure.
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