Comparison Method: How it Works and When it Should be Used

Understanding the Comparison Method in Property Valuations

When it comes to property valuations, especially in Dubai's competitive residential market, accuracy is key. The comparison method is the go-to approach for valuing residential properties due to its practicality and relevance. In this article, I’ll explain what the comparison method is, how it works, and why it’s often the best choice for residential valuations.

What is the Comparison Method?

The comparison method estimates a property’s market value based on recent sale prices of similar properties in the same area. By using real transaction data, this approach establishes a realistic estimate that aligns with current market conditions. For residential properties, this method is generally the most reliable, especially when there is sufficient comparable data available.

How the Comparison Method Works

To understand how this method produces a valuation, let’s break it down into three main steps:

1. Data Collection: The first step is gathering recent sales data of comparable properties from the Dubai Land Department. Key criteria include location, property type, size, and features.
2. Adjustments for Differences: Since no two properties are exactly alike, adjustments are made to account for variations. For example, properties with a better view, more square footage, or newer renovations may have higher values.
3. Calculating an Average Price per Sq. Ft.: By analysing the comparable data, an average price per square foot is determined, which then provides the basis for the final estimate.

At YallaValue, our automated valuation model (AVM) uses the comparison approach. Our AVM processes a vast pool of transaction data, which means the more comparable sales we have, the more accurate the valuation will be.

When is the Comparison Method Most Effective?

The comparison method works best in specific conditions:

• High Volume of Transactions: It’s most effective in areas with frequent recent sales, which is common in Dubai’s bustling residential market.
• Standardised Properties: This method shines for properties with standardised layouts or in well-known developments where data is more consistent.

For areas or property types with limited sales data, such as unique villas or luxury apartments, the method may not be as accurate. In such cases, we recommend a human-reviewed valuation to get a more tailored result.

Limitations and Challenges of the Comparison Method

Like any method, the comparison approach has its limitations:

• Data Availability: The method’s accuracy hinges on having recent, comparable sales data. When data is limited, the valuation may be less precise.
• Listing Prices vs. Sale Prices: In cases where sales data is scarce, listing prices can provide some insight, but they must be used cautiously, as asking prices often exceed actual sale prices.
• Unique Properties: Unusual or highly customised properties may fall outside the scope of the comparison method’s standard estimates. For these cases, human insight can help balance the analysis.

Why the Comparison Method is Ideal for Residential Properties

The comparison method is particularly suitable for residential valuations because of the availability of similar property data, especially in a market like Dubai’s. For insurance or highly specialised cases, alternative approaches, like the cost method, are sometimes preferred. However, for the majority of residential valuations, this method is straightforward, reliable, and market-reflective.

Using the Comparison Method in YallaValue’s AVM

At YallaValue, our machine learning models use the comparison method to deliver instant and reliable property valuations. Our system processes extensive transaction data to ensure accurate estimates, especially for standard residential properties. When we encounter unique properties with limited comparable data, users can opt for a human-checked valuation to get the most accurate assessment possible.

Conclusion

The comparison method remains the preferred approach for residential property valuations because it’s both data-driven and market-responsive. Its accuracy improves with the quality and quantity of transaction data, making it ideal for Dubai’s active residential market. If you’re curious about the value of your property, try YallaValue’s valuation tool to experience firsthand the precision of the comparison method.