A property has no quoted price because it never trades on an exchange. Its value has to be inferred from what similar properties recently sold for.
Uniqueness forces the market to be inferred
Shares in a company are interchangeable, so a single trade establishes a price for all of them. Houses are not interchangeable, and each transaction reveals only its own price.
The valuer therefore assembles evidence from properties that traded recently and resemble the subject closely enough to be informative.
What counts as close enough is a judgment, and it is the main source of variation between two valuations of the same property.
Adjustments translate one property into another
Comparables are never identical, so the valuer adjusts for the differences: an extra bedroom, a larger plot, a modernised kitchen, a worse aspect.
Each adjustment estimates what the market pays for that feature, derived from other pairs of sales that differed mainly in that respect.
Adjustments accumulate error. A comparable requiring several large corrections is weaker evidence than one requiring almost none, even if it sits on the same street.
Recency can matter more than proximity
In a moving market, a sale from a year ago describes conditions that no longer exist. A more distant but recent sale may be the better guide.
Valuers weight evidence by both dimensions and generally prefer transactions within the last few months, adjusting older ones for market movement since.
That time adjustment is itself an estimate, which is why valuations become less reliable exactly when prices are changing quickly.
Thin markets weaken the method
The approach needs transactions. Where few properties have sold, the valuer works from a small and possibly unrepresentative sample.
Rural areas, distinctive architecture and unusually large homes all produce this problem, and valuations of such properties carry wider uncertainty.
Lenders respond by lending more conservatively against them, since their own recovery estimate rests on the same thin evidence.
Income and cost approaches fill the gap
Where comparables fail, two alternatives exist. An income approach values the property from the rent it can generate, capitalised at a yield drawn from similar investments.
A cost approach estimates what rebuilding would cost, less depreciation, plus land value. It is used mainly for specialised buildings that rarely change hands.
Each has its own weak point, and a valuer facing a difficult property will often run more than one and reconcile the results rather than trusting a single figure.