When figuring out what a home is worth, appraisers usually use one of three main methods:
- Sales Comparison Approach (SCA)
- Income Approach (used more for rental or investment properties)
- Cost Approach (used when it’s new construction or unique properties)
For regular houses, the Sales Comparison Approach is the most common. It works by looking at what similar homes in the area have recently sold for and using that to estimate the value of the property in question.
The big idea behind this method is the principle of substitution:
👉 A buyer won’t pay more for a home than what they could buy a similar one for nearby.
How It Works
- Collecting Data
The appraiser looks at recent sales of homes that are as similar as possible to the property being valued. They look at things like:- Location (same neighborhood or close by)
- Size (square footage, lot size)
- Style (ranch, two-story, condo, etc.)
- Age and condition
- Features (bedrooms, bathrooms, garage, basement, upgrades, etc.)
- Picking the Best Comparables
Not all sales are useful. The appraiser narrows down to about 3–6 comps that are the most similar.- They avoid unusual sales like foreclosures unless they adjust for them.
- They stick with reliable data sources, such as MLS or public records.
- Making Adjustments
No two homes are exactly alike, so adjustments are needed. For example:- If the comp has a pool and the subject home doesn’t, the appraiser subtracts value from the comp.
- If the comp has fewer bathrooms, the appraiser adds value to it to make it more “equal” to the subject property.
- Adjustments can also be made for timing (if prices have gone up or down since the comp sold), location, or seller concessions.
- If the comp is better, subtract value.
- If the comp is worse, add value.
- Reconciliation
After adjustments, each comp gives an adjusted value. The appraiser then looks at all of them and decides which ones are most reliable (usually the ones closest in similarity and needing fewer adjustments). From there, they give their final estimate of value.
Why This Approach is Useful
- It reflects what buyers are actually paying in today’s market.
- It’s straightforward and easy to explain.
- Works best for single-family homes in areas with lots of recent sales.
Where It Can Be Tricky
- If few homes have sold recently, it’s harder to find good comps.
- In rural areas or unique neighborhoods, there may not be close matches.
- Adjustments rely on judgment, so two appraisers might come up with slightly different numbers.
- In fast-changing markets, even recent sales can be outdated.
✅ In short: The Sales Comparison Approach is like checking the “going rate” of homes by comparing them to recent sales of similar ones, then making tweaks for the differences.
Last Updated on 2 days by pinc