What is the sales comparison approach in appraisal?

The sales comparison approach is a method that determines the value of a property by examining the sale prices of similar properties that have recently sold in the same area. This approach is based on the principle of substitution, which asserts that a buyer will not pay more for a property than they would for a similar property in the same market.

In applying this method, appraisers carefully select comparables—properties that are similar in size, location, condition, and amenities. They analyze the sales data of these comparable properties, making adjustments for differences to arrive at a fair market value for the subject property. The strength of this approach lies in its reliance on actual market transactions, making it relevant and reflective of current market conditions.

In contrast to the other methods mentioned: analyzing construction costs focuses on the cost to build rather than market value, evaluating historical prices does not take current market dynamics into account, and forecasting future prices speculates on market trends rather than providing a current value assessment. The sales comparison approach remains one of the most widely used methods due to its direct link to market behavior.