Which valuation approach is most commonly used for residential properties in New Zealand?
Correct Answer
B) Sales comparison approach
The sales comparison approach is most commonly used for residential properties as it compares recent sales of similar properties in the same area. This method provides the most reliable indication of market value for residential properties where comparable sales data is readily available.
Why This Is the Correct Answer
Homes trade often, so there is usually plenty of sales evidence; comparing the subject with recent similar sales is the standard residential method.
Why the Other Options Are Wrong
Option A: Income approach
The income approach suits investment property; most homes are bought to live in, not for their rent.
Option C: Cost approach
The cost approach suits new or special-purpose buildings where sales evidence is thin.
Option D: Residual approach
The residual approach values development sites, not established homes.
Deep Analysis of This Valuation Question
The sales comparison approach mirrors how home buyers think: they compare what similar homes have sold for. It is reliable where there are enough recent, similar sales, and it is also the basis of licensees' market appraisals.
Background Knowledge for Valuation
The three main approaches are sales comparison, income and cost. The residual approach is a specialised method for development land: completed value less development costs and profit.
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