Which approach to value is based on comparable sales?

The market approach to value is grounded in the principle of comparing similar properties that have recently sold in the area. This method, often referred to as the sales comparison approach, relies on analyzing sales data of comparable properties to determine a property's market value. By looking at properties that are similar in characteristics such as location, size, condition, and amenities, appraisers can derive the most accurate estimate of value for the subject property based on current market conditions.

This approach is particularly effective in markets where there is sufficient transactional data, as it reflects what buyers are willing to pay in a competitive market. Given its reliance on actual sales data, it often provides a realistic perspective of value that aligns closely with prevailing market trends.

In contrast, the cost approach focuses on the cost to replace the property, while the income approach values a property based on its potential to generate income. Economic principles may guide various valuation methods, but they do not specifically define a direct approach like the market approach does.