Approaches To Value

Approaches to Value in Real Estate Appraisal ## The Three Approaches Real estate appraisers use three distinct methodologies to estimate market value, each based on different data and logic. Every appraisal typically applies all three approaches and then reconciles them into a final opinion of value — giving more weight to whichever approach is most reliable for the property type. The three approaches are: Sales Comparison, Cost, and Income. Understanding each approach — when to use it, how it works, and its limitations — is tested heavily on the California salesperson exam. --- ## Sales Comparison Approach (Market Approach) The sales comparison approach (also called the market approach or direct sales comparison) estimates value by comparing the subject property to recent sales of similar properties (comparables or "comps"). It is the most commonly used approach for residential property and the primary method used in CMAs. ### How It Works 1. Select 3–6 recently sold properties (ideally within the past 6 months) that are similar to the subject in location, size, age, condition, and features 2. Identify differences between each comparable and the subject property 3. Make dollar adjustments to the comparable's sale price to account for differences - If the comparable has a feature the subject lacks → subtract from the comp's price - If the comparable lacks a feature the subject has → add to the comp's price 4. After all adjustments, each comparable yields an adjusted sale price — a proxy for what the subject would have sold for 5. Reconcile the adjusted values into a final estimate, giving more weight to comparables that required fewer/smaller adjustments ### The Adjustment Rule (Critical for the Exam) The logic:…