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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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Professional standards are being breached when an appraiser selectively chooses comparable sales to achieve a specific value. The expectation is not for all appraisers to arrive at identical figures; rather (their analysis should be logical), thoroughly supported, and align with established methodologies. By applying a net adjustment of $100,000 to a comparable sale valued at $400,000 — an appraiser effectively communicates that the comparable has limited relevance due to numerous significant differences.

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In paired sales analysis (an appraiser identifies two comparable properties), one of which, having a pool, sold for $15,000 more. Which order of adjustments is generally preferred in the sales comparison approach? What adjustment order is typically regarded as the most reliable in the sales comparison approach? The comparable sale features a garage valued at $8,000 (unlike the subject property), which lacks one.

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.