Theory and Steps

Theory and Steps The Sales Comparison Approach is the most widely used method for valuing residential real estate. It relies heavily on the Principle of Substitution—the idea that a buyer will not pay more for a home than the cost of acquiring a similar one. To perform this, an appraiser finds recently sold properties ("comparables" or "comps") that are similar to the property being valued ("subject property"). The crucial rule to remember is that adjustments are always made to the comparable, never to the subject. If a comparable has a feature the subject lacks (like a pool), the value of that pool is subtracted from the comparable's price. Conversely, if the comparable lacks a feature the subject has (like an extra bedroom), the value is added to the comparable's price. This process creates an "adjusted sale price" for each comparable, which indicates what those homes would have sold for if they were identical to the subject.Best Suited For This approach is most effective when there is an active market with plenty of recent sales data. It is the primary method used for single-family homes, condominiums, and vacant land.