Sales Comparison Approach

What is the sales comparison approach?

Well, first we need to start with what an appraiser is.  An appraiser is a person qualified by education, training, and experience to estimate the value of real and personal property.  An appraiser is usually hired by a lender to give their unbiased opinion to the lender on the value of a property.  The sales comparison approach is one of the formulas the appraiser can use to come to a valuation of a property.  The sales comparison approach is also known as the market data approach.

When would an appraiser use the sales comparison approach to arrive at a valuation of property?

Since recent sales data of similar properties is needed under the market data approach, it is most commonly used for residential properties.

Is a comparative (or competitive) market analysis and the sales comparison approach the same thing?Sales Comparison Approach

No, they are not.  You must understand the difference between the two for your exam.  A comparative market analysis, or CMA, is completed by a licensed broker.  It is an estimation of the market value range they feel the property should be listed within.  A broker cannot complete an appraisal unless they are also a licensed appraiser.

Are there any other options an appraiser has when estimating the value of a property other than the sales comparison approach?

Yes, two other approaches may be used to evaluate the value of a property, and they are as follows:

  1. Replacement Cost or Summation Approach
  2. Income Approach

Here is a sample real estate test question based upon the sales comparison approach:

Here you go:

Which of the following appraisal approaches would be used when attempting to appraise residential property?

A.  Cost approach
B.  Sales comparison approach
C.  Income approach
D.  Vacant theory approach

Answer: B
Explanation: The sales comparison approach is the best appraisal method for single-family dwellings. The cost approach is best used for new or special use structures. The income approach is used for income producing properties. There is no vacant theory approach. It is entirely made up.

What else can help me prepare to pass my real estate licensing exam on my first attempt?

Other tips to help you pass your real estate licensing exam on your first attempt:

Real Estate Test Taking Tips

How to Pass the Real Estate Exam

Real Estate Exam Math Made Easy

Also, check out our question of the day videos on our YouTube channel:

PassMasters Real Estate Exam Prep YouTube Channel