Definition
The sales comparison approach estimates value by comparing to recently sold similar properties. It's most reliable and commonly used for residential properties when adequate comparables exist.
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The sales comparison approach, also called the market approach, relies on the principle that buyers will not pay more for a property than the cost of acquiring an equally desirable substitute property. Appraisers identify comparable properties, analyze their sale prices, make adjustments for differences in features and conditions, and conclude to a value for the subject property. This approach is most reliable when adequate comparable sales data is available.
Pro Tip
Ensure your agent uses recent comparables from your immediate neighborhood. Older or distant comparables are less reliable.
Example
Using the sales comparison approach, an appraiser finds three comparable homes sold between $420,000 and $435,000. After adjusting for differences in lot size, improvements, and condition, the appraiser concludes the subject property value is $428,000.