Which approach compares sales prices of similar properties for valuation?

The direct sales approach, also known as the sales comparison approach, is a valuation method that compares the selling prices of similar properties to determine the value of a property being assessed. This approach is particularly effective in active real estate markets where there are numerous comparable sales within a similar timeframe. By analyzing current market data of similar properties—often referred to as "comps"—appraisers can estimate a property's value based on its similarities to recently sold properties, adjusting for differences that may influence the price.

The success of this method relies on the availability of comparable sales data, the selection of appropriate properties, and making necessary adjustments based on factors such as location, size, condition, and amenities. This method is widely used in residential real estate appraisals due to its logical and straightforward nature, reflecting current market trends accurately.

In contrast, while the income approach focuses on the generation of income produced by a property and the cost approach assesses the value based on the cost to replace or reproduce the property, these methods do not primarily utilize sales prices of comparable properties for valuation. The historical approach would involve examining past events or trends but is not typically used for current market valuations.