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The value of a property is estimated by the income capitalization approach — which utilizes cap rate or GRM formulas based on the income it produces. Although all three valuation methods can be utilized for most properties, the sales comparison approach stands out as the most reliable for residential real estate due to the abundance of comparable sales data. Among the three appraisal methods utilized to establish market value, the sales comparison approach is one, alongside the cost approach and the income capitalization approach. For property transactions, the sales comparison approach is significant as it serves as the primary method for lenders to ensure the property’s value aligns with the loan amount before mortgage approval. To comprehend how the sales comparison approach integrates with the broader valuation framework, please consult our guide on appraisal methods. Remember during the exam that adjustments are never made to the subject property; all modifications are applied to the comparable.
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Why Does the Sales Comparison Approach Matter for Property Transactions?
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An appraiser who selectively chooses comparables to achieve a predetermined value is breaching professional standards. The requirement is not for every appraiser to arrive at the same figure — but rather for the analysis to be reasonable, supported by evidence, and aligned with accepted methodologies. By making a $100,000 net adjustment on a $400,000 comparable, the appraiser essentially indicates that the comparable’s utility is limited due to numerous material differences.
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In paired sales analysis (an appraiser identifies two similar properties), where one has a pool and sold for $15,000 more than the other. What adjustment sequence is typically preferred in the sales comparison approach? Which adjustment sequence is regarded as the most reliable in the sales comparison approach? A comparable sale features a garage valued at $8,000 — while the subject property lacks a garage.
The appraiser tends to rely on just one or two of the valuation approaches. It represents a professional appraiser’s assessment of market value. Which statement offers the most accurate definition of appraisal?