Comparable Sales Approach
Definition
The comparable sales approach estimates a property's value by comparing it to similar properties that have recently sold in the same market area. It is the most widely used and reliable approach for appraising residential properties.
Example
If the subject property has 3 bedrooms and a comparable that sold for $300,000 has 4 bedrooms, the appraiser would subtract the value of the extra bedroom (say $15,000) from the comparable's price, adjusting it to $285,000.
Exam Tip
Always remember: adjust the comparable, not the subject. Use the mnemonic CBS—Comparable Better, Subtract. If the comparable is better than the subject, subtract from the comparable's price. If the comparable is inferior, add to its price.
Related Valuation Terms
Real Estate Transfer Taxes
A transfer tax is a tax imposed on the transfer of ownership of real estate.
Property Tax Exemptions and Relief Programs
Various programs and exemptions exist to reduce the property tax burden for specific groups, such as seniors, homesteaders, or veterans.
Depreciation of Investment Property
Depreciation is an accounting method of allocating the cost of an asset over its useful life, allowing investors to deduct a portion of the asset's cost each year.
Property Tax Assessment Limits
Many states have laws to limit how much property taxes can increase each year, regardless of market value fluctuations.
Homestead Portability
Homestead portability allows homeowners to transfer a portion of their accumulated homestead tax savings to a new homestead in the same state.
Income Approach
The income approach estimates a property's value based on the income it generates by converting net operating income into a value estimate using a capitalization rate. It is the preferred method for income-producing properties.
Frequently Asked Questions
Test Your Valuation Knowledge
Practice with exam-style questions to make sure you can apply Comparable Sales Approach and other valuation concepts.