Which approach to value relies on comparable properties?

The sales comparison approach is the method that hinges on determining a property's value based on the sale prices of similar properties in the same area, commonly referred to as "comps." This approach is grounded in the principle of substitution, which states that a knowledgeable buyer would not pay more for a property than the cost of an equivalent alternative.

In practice, appraisers will analyze recent sales data of comparable properties, making adjustments for differences in features, location, and market conditions to establish a fair market value for the property in question. This method is widely used in residential real estate, where there are often multiple comparable sales available for analysis.

The other methods, such as the cost approach, focus on the cost of constructing a similar property from scratch, and the income approach evaluates the potential income-generating ability of a property to determine its value, while the depreciation approach is concerned with assessing value based on accumulated wear and tear and functional obsolescence. None of these methods primarily rely on comparable sales data to derive property value as the sales comparison approach does.