Which valuation approach is primarily used in residential appraisals?

The Sales Comparison Approach is primarily used in residential appraisals because it provides a direct method for determining a property's value by comparing it to similar properties that have recently sold in the same area. This approach reflects current market conditions and the principle of substitution, which states that a buyer would not pay more for a property than the cost of acquiring a comparable substitute.

In residential settings, buyers often base their purchase decisions on the prices of comparable homes, making this method particularly relevant and effective. Appraisers will examine recent sale prices of similar homes, adjusting for differences in size, location, and features, to arrive at a value that accurately reflects what the market is willing to pay for a similar property at a given time.

While the Cost Approach and Income Approach can also be used in specific situations, they are less prevalent in standard residential appraisals. The Cost Approach focuses on the value of the land plus the cost to build the property new, which doesn’t consider depreciation in the same way the Sales Comparison Approach does. The Income Approach is more applicable to investment properties or rental units, where the income generated plays a significant role in determining value, rather than the value being driven primarily by comparable sales. The Market Approach, while it may sound relevant, is