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The income capitalization approach estimates property value based on the income it generates using cap rate or GRM formulas. While all three methods can be applied to most properties, the sales comparison approach is the most reliable for residential real estate because comparable sales data is abundant. The sales comparison approach is one of 3 appraisal methods used to determine market value, alongside the cost approach and the income capitalization approach. The sales comparison approach matters for property transactions because it is the primary method lenders use to verify that the property is worth the loan amount before approving a mortgage. To understand how the sales comparison approach fits within the broader valuation framework, review our guide on appraisal methods. On the exam, remember that the subject property is never adjusted — all changes apply to the comp.
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Why Does the Sales Comparison Approach Matter for Property Transactions?
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An appraiser who cherry-picks comps to reach a predetermined value is violating professional standards. The standard is not that every appraiser must reach the same number, it’s that the analysis must be reasonable, well-supported, and consistent with recognized methodology. An appraiser making a $100,000 net adjustment on a $400,000 comp is essentially saying the comp’s usefulness is limited, too many material differences exist.
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In paired sales analysis, an appraiser finds two similar properties that differ only in that one has a pool and sold for $15,000 more. In the sales comparison approach, which adjustment sequence is generally preferred? In the sales comparison approach — which adjustment sequence is generally considered most reliable? A comparable sale has a garage worth $8,000, but the subject property does not have a garage.
The appraiser tends to use only one or two of the approaches to valueb. It is a professional appraiser estimate of market valuec. Which of the following statements provides the best definition of appraisala.