Why is the sales comparison approach significant in real estate appraisal?

The sales comparison approach is a key method used in real estate appraisal primarily because it provides a basis for determining a property’s market value. This approach involves comparing the subject property to similar properties that have recently sold in the same area. By analyzing the sale prices of these comparable properties, appraisers can estimate a fair market value for the property being assessed.

This method is grounded in the principle of substitution, which states that a buyer would not pay more for a property than what it would cost to acquire a similar one in the same condition. Therefore, using comparative sales data allows for an objective assessment of value that reflects current market conditions. The accuracy of this method relies heavily on the quality and relevance of the comparables selected, making it a widely accepted technique in real estate valuation.

In contrast, estimating repair costs, determining zoning compliance, and assessing profitability for rental properties are important aspects of a real estate transaction but do not directly address the market value determination process like the sales comparison approach does.