Which appraisal method is most commonly used for residential properties?

The Sales Comparison Approach is the most commonly used method for appraising residential properties because it focuses on analyzing recent sales data of similar properties in the same area or neighborhood. This approach operates on the principle of substitution, which states that a buyer would not pay more for a property than the price of a similar property that has recently sold.

In practice, appraisers gather information on comparable properties, or “comps,” that have sold within a specific timeframe. They adjust the sale prices of these comps based on differences in characteristics such as square footage, number of bedrooms and bathrooms, and other relevant features. This method reflects current market conditions and buyer preferences, making it particularly effective for residential real estate where the market is generally active and transparent.

While the Cost Approach can be useful in certain situations, such as for new constructions or unique properties, it is less relied upon for general residential appraisals. The Income Approach is primarily used for investment properties that generate rental income, making it less applicable to typical residential homes. The term "Market Value Approach" is somewhat ambiguous and often overlaps with the Sales Comparison Approach, but it is not a specific appraisal method on its own.

Overall, the Sales Comparison Approach’s reliance on actual market transactions and buyer behavior makes