What is the “sales comparison approach” in property valuation?

The sales comparison approach is a widely recognized method used in property valuation that focuses on estimating a property's value by comparing it to the sale prices of similar properties that have recently been sold in the same area. This approach relies on the principle of substitution, which states that a buyer will not pay more for a property than the cost of an equivalent property.

In this method, appraisers analyze various features of recently sold comparable properties, such as location, size, condition, and amenities, to adjust for differences and arrive at a value estimate for the subject property. This approach is particularly effective in residential real estate markets, where numerous comparable sales are typically available, allowing for a robust analysis of market trends and property values.

While the sales comparison approach is applicable to different types of properties, it is not limited to commercial property valuation strategies, nor is it a legal requirement for appraisals or specific to property tax assessment methods. The focus remains squarely on using relevant market data to derive a value that reflects current market conditions, making it a fundamental tool for real estate professionals.