What is an essential aspect of the direct sales comparison approach?

In the direct sales comparison approach, finding comparable sales in the market is essential because this method relies on the principle of substitution. The idea is that a property’s value is determined based on the sale prices of similar properties that have recently sold in the same or a similar market. By analyzing these comparable sales, an appraiser can establish a basis for valuing the subject property, taking into account factors such as location, size, condition, and features. This approach is particularly effective in residential appraisals where there are enough comparable sales to draw valid conclusions about market value.

Analyzing rental income potential, determining construction costs, and calculating depreciation are more relevant to different appraisal methods, such as the income approach and the cost approach. While these aspects can provide useful information about a property, they do not directly support the core intent of the direct sales comparison approach, which is to benchmark the subject property's value against similar recent sales.