Comparative Value Method: Valuation from Real Purchase Prices

What is the comparative value method?

The comparative value method is one of three standardised valuation methods of the valuation ordinance (ImmoWertV), which has been in force since 1 January 2022. It is governed by §§ 24 to 26 ImmoWertV. The other two methods are the income approach and the cost approach.

The basic idea is simple and close to common sense: the value of a property is derived from the prices actually achieved for comparable objects. If several similar apartments in the same location have been sold recently, those purchase prices allow a very good estimate of what the property to be valued is worth on the market.

According to § 24 paragraph 1 ImmoWertV, the comparative value is determined from a sufficient number of comparative prices. This market reference is the central strength of the method: it does not reflect what a property should theoretically cost, but what comparable objects actually fetched. This is precisely why the comparative value is often regarded as the most meaningful of the three methods for marketable residential properties.

How the method works in calculation terms

The ImmoWertV distinguishes two routes by which a comparative value can arise.

1. The direct comparative value method (comparative prices). Here, specific purchase prices of individual comparison properties are used. According to § 25 ImmoWertV, these are purchase prices of properties whose features sufficiently match the object to be valued and that were sold close in time to the valuation reference date. A preliminary comparative value is formed statistically from a sufficient number of such prices.

2. The indirect comparative value method (comparative factors and land standard values). Instead of individual prices, average key figures derived from many purchase contracts are used here. An object-specifically adjusted comparative factor or land standard value (Bodenrichtwert) (§ 26 ImmoWertV) is multiplied by the matching reference quantity of the object, such as the living area or the plot area.

The procedure is structured in stages under § 24 ImmoWertV: first a preliminary comparative value arises. This becomes the market-adjusted preliminary comparative value via the market adjustment under § 7 ImmoWertV. Only the final consideration of special object-specific land features yields the definitive comparative value.

When the comparative value method is used

The comparative value method works particularly well whenever there are many similar objects and thus a broad database of purchase prices. Typical applications are:

• Condominiums: They are often standardised and frequently traded. In cities such as Düsseldorf, many comparable sales are available, which makes the method especially robust here.
• Undeveloped plots of land: For building land, comparison with similar plots in the same location is the obvious route. Here, land standard values (Bodenrichtwerte) play a central role.
• Terraced houses and detached houses in homogeneous building areas: Where many structurally similar objects are sold, comparison works well here too.

The more individual a property is, the more difficult the comparison becomes. An architecturally unusual single object, a special-purpose property, or a house in a location with very few sales often cannot be compared reliably. The cost approach or the income approach then come to the fore.

Where the comparative data come from

The quality of a comparative value stands or falls with the underlying data. The most important sources are:

• Purchase price collections of the expert committees (Gutachterausschuss): Under § 195 German Building Code (BauGB), all notarial property purchase contracts are transmitted to the responsible expert committee. This purchase price collection produces the most reliable comparative data of all, because it is based on real, notarised sales.
• Comparative factors: From the purchase price collections, the expert committees derive average factors, such as prices per square metre of living area. They are adjusted object-specifically for the valuation (§ 26 ImmoWertV).
• Land standard values (Bodenrichtwert) and BORIS NRW: Land standard values are average location values of the land and are provided in North Rhine-Westphalia via the free portal BORIS NRW (boris.nrw.de). It also offers property market reports and overviews.
• Property market reports: The local expert committees and the Higher Expert Committee NRW regularly publish market reports with analyses of developments in the respective area.

The complete purchase price collection itself is not freely accessible. Reliable comparative values therefore require that one knows the right data, can classify them, and can transfer them to the specific object.

Necessary adjustments, additions and deductions

No two properties are identical. That is why comparative prices, comparative factors and land standard values must always be adjusted to the specific object. Typical adjusting levers are:

• Location: Macro location (city, district, transport links) and micro location (street, neighbourhood, noise, view) often strongly affect the price and are taken into account through additions or deductions.
• Condition: Year of construction, degree of modernisation, energy condition and any building defects lead to additions or deductions relative to the comparison objects.
• Fittings: The quality of bathrooms, floors, layout, balcony, lift or parking space noticeably influences the value.
• Time: If comparison sales are distant in time from the reference date, they are converted to the reference date via index series (market adjustment under § 7 ImmoWertV).
• Special object-specific land features: Under § 8 ImmoWertV, these include, for example, building defects and structural damage, soil contamination, or property-related rights and encumbrances such as a residential right or right of way.

What matters is the principle of consistency: a feature already contained in the comparative price must not be taken into account a second time through an addition or deduction.

Advantages and limits of the method

The comparative value method has clear strengths, but also prerequisites that are not always met.

Advantages:

• High market proximity: It is based on prices actually paid and reflects real market activity most directly.
• Comprehensibility: The idea that a similar apartment in the neighbourhood was recently sold at a certain price is easy to understand even for laypeople.
• Few model assumptions: Where many comparison cases exist, fewer calculation assumptions are needed than with the other methods.

Limits:

• Data dependency: Without a sufficient number of suitable comparison cases, the method is barely applicable, for example with rare or very individual objects.
• Restricted data access: The complete purchase price collection rests with the expert committees and is not freely available.
• Latitude in adjustments: The necessary additions and deductions require experience, otherwise unrealistic results easily arise.

Distinction from the income and cost approaches

Alongside the comparative value method, the ImmoWertV knows two further methods, each of which takes a different perspective on value.

The income approach (§§ 27 to 34 ImmoWertV) places the achievable returns at the centre. It is used above all for let objects such as apartment buildings or commercial properties, where the yield is the essential value driver.

The cost approach (§§ 35 to 39 ImmoWertV) is based on the substance, that is, on the construction costs of the built structures less the depreciation for age, plus the land value. It is typically used for owner-occupied detached houses when there is no good comparative data situation.

Put simply: the comparative value method is price-oriented, the income approach return-oriented and the cost approach substance-oriented. In practice, one method often serves as the main route, while a second is used for plausibility checking. Which method is the right one depends on the type of object, its use and the data situation.