Which approach is used to estimate the value of a property based on comparable sales?

The sales comparison approach is a method used to estimate the value of a property by analyzing the sale prices of similar properties in the same area. This approach relies on the premise that properties with similar characteristics, such as location, size, and features, should sell for similar prices. By comparing the subject property to recently sold properties that are comparable, appraisers can derive a realistic market value.

This approach is particularly useful in residential real estate transactions where there are sufficient comparable sales available. It involves adjusting the sale prices of these comparables for any differences to arrive at a value for the subject property. Factors such as square footage, number of bedrooms and bathrooms, condition, and location are considered to make these comparisons accurate.

In contrast, the cost approach estimates value based on the cost to reconstruct the property minus any depreciation, while the income capitalization approach is used primarily for investment properties by analyzing the income generated. A comparative market analysis is often a more informal tool used by real estate agents to help sellers and buyers understand the market, but it is not a formal appraisal method like the sales comparison approach.