What does the sales comparison approach primarily depend on?

The sales comparison approach primarily relies on comparing the subject property to recently sold properties that are similar in characteristics, location, and other relevant factors. This method is grounded in the principle of substitution, which maintains that a buyer will not pay more for a property than the cost to acquire a comparable substitute. By looking at sale prices of comparable properties, appraisers can derive an accurate and market-reflective estimate of value for the subject property.

This approach is especially effective in active real estate markets where sufficient comparable sales data is available. It allows for adjustments based on differences in features such as square footage, updates, amenities, and location, which ensures that the valuation is as precise as possible. This makes it a widely used method among appraisers when determining the value of residential real estate.

In contrast, approaches focused on rental income analyze income-producing properties, while estimates from appraisers can be influenced by various subjective factors and are not solely based on market data. Construction costs pertain more to newly built homes and do not necessarily reflect market value, as they do not consider how much similar properties have actually sold for in the current market. Therefore, the sales comparison approach is distinctly marked by its reliance on direct comparisons to recent sales.