What methodology involves comparison of sales data similar to the property being appraised?

The Sales Comparison Approach is the methodology that involves comparing the sales data of properties that are similar to the one being appraised. This approach is grounded in the principle of substitution, which states that a buyer will not pay more for a property than they would for a comparable one in a similar market condition. By assessing the sales prices of similar properties, appraisers can estimate the value of the subject property based on actual market transactions.

This method is particularly effective in active real estate markets where there are enough comparable properties to draw information from, providing a clearer picture of what buyers are willing to pay. Factors such as location, size, condition, and features of the comparable properties are taken into account to adjust the sale prices for differences, thus arriving at a value for the subject property that reflects current market conditions.

Other methodologies, such as the Income Approach and the Cost Approach, utilize different principles and data sets. The Income Approach focuses on the potential income generated by the property, while the Cost Approach centers on the cost to replace the property minus depreciation. The Direct Comparison Method, while similar, can include a broader range of comparisons beyond real estate sales, making it less specific than the Sales Comparison Approach, which is firmly tied to comparable sales data.