What approach compares a property's value to other similar properties?

The sales comparison approach is a common method used to determine a property's value by comparing it to similar properties that have recently sold in the same area. This approach operates on the principle of substitution, suggesting that a buyer would not pay more for a property than it would cost to purchase a comparable alternative.

In applying this method, real estate professionals gather data about recently sold homes that are similar in characteristics such as size, condition, location, and amenities. They analyze the sale prices of these comparable properties, adjusting for differences to arrive at a fair market value for the subject property. This approach is particularly effective in active real estate markets where there is a sufficient volume of comparable sales data.

The income approach and the cost approach serve different valuation purposes. The income approach is often used for investment properties and considers the income generated from the property. The cost approach focuses on what it would cost to replace the property, taking into account the land value and construction costs. The gross rent multiplier approach is primarily used for income-generating properties as well, providing a quick method for estimates based on rental income.