What type of appraisal compares a property to similar properties?

The sales comparison appraisal is the method used to assess a property's value by comparing it to similar properties that have recently sold in the same area. This approach is grounded in the principle of substitution, which posits that a buyer would not pay more for a property than what it would cost to purchase an equally desirable and comparable property.

In conducting a sales comparison appraisal, an appraiser looks for properties that are similar in terms of location, size, condition, and features. Adjustments are then made to account for differences in these attributes to arrive at a fair market value. This method is widely used for residential real estate because it reflects what buyers are actually willing to pay based on current market conditions.

Understanding this appraisal method is crucial in the mortgage industry as it directly impacts loan decisions and property valuations. The other types of appraisals mentioned focus on different methodologies; for example, cost appraisals determine value based on the cost to replace or reproduce a property, income appraisals calculate value based on potential income generation, and market analysis appraisals assess pricing trends without direct comparison to specific sales.