When is the market approach used in property appraisal?

The market approach is commonly utilized in property appraisal when there is a sufficient bank of sales of comparable properties. This approach relies on the principle of substitution, which asserts that an informed buyer would not pay more for a property than the cost of acquiring an equally desirable substitute property. Therefore, when there are numerous comparable properties available in the market, the appraiser can analyze recent sales data, evaluate market trends, and make necessary adjustments for differences in features or conditions between the subject property and its comparables.

Using the market approach in this manner enables appraisers to derive a value estimate that reflects current market conditions. An adequate number of comparables ensures a more reliable and defensible valuation, as the data used can be directly linked to similar properties that buyers and sellers consider when making transactions.

In contrast, properties with high uniqueness may not have reliable comparables, making it challenging to apply this approach effectively. Similarly, when there are few comparable properties or in cases involving properties under litigation, the market approach might not provide the most accurate or applicable valuation, as lacking sufficient sales data can lead to less confidence in the resulting assessment.