Sales Comparison Approach
A valuation method that estimates a property's value by comparing it to similar properties that have recently sold in the same market area. Adjustments are made for differences in features such as size, condition, location, and amenities.
The sales comparison approach is the most commonly used method for residential appraisals and is considered the most reliable when sufficient comparable sales data is available. The appraiser selects three to six comparable sales ("comps") that are similar to the subject property in terms of location, size, age, condition, and features. Each comparable is then adjusted for differences — if a comp has a larger lot than the subject, a negative adjustment is made; if it lacks a feature the subject has, a positive adjustment is applied. The adjusted sale prices of the comparables bracket the subject's indicated value. This approach reflects what buyers are actually paying in the current market, making it especially persuasive for lenders and GSEs.
Related Terms
Comparable Sale
A recently sold property that is similar to the subject property in terms of location, size, condition, and features, used as evidence to support the appraiser's opinion of value in the sales comparison approach..
Adjustment
A dollar or percentage modification applied to a comparable sale's price to account for differences between the comparable and the subject property.
Market Value
The most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus..
Reconciliation
The process by which an appraiser evaluates and weighs the results from the different valuation approaches (sales comparison, cost, and income) to arrive at a final opinion of value..
Paired Sales Analysis
A technique used to estimate the value contribution of a specific property feature by comparing two sales that are identical except for that one feature.
More in Valuation Approaches
View allCost Approach
A valuation method that estimates value by calculating the cost to reproduce or replace the improvements, subtracting accrued depreciation, and adding the land value.
Income Approach
A valuation method that estimates a property's value based on the income it generates or is expected to generate.
Bracketing
The practice of selecting comparable sales that are both superior and inferior to the subject property in key features, so that the subject's indicated value falls within the range of adjusted comparable values..
Replacement Cost
The estimated cost to construct a building with equivalent utility to the subject improvements, using current materials, standards, and design, but not necessarily an exact replica..