How does the market data (sales comparison) approach determine value?

• A. Valuation based on adjusting prices of recently sold comparable properties to reflect differences.
• B. Valuation based on construction cost.
• C. Valuation based on the appraiser's opinion.
• D. Valuation based on rental income.

Answer: (A)

The market data approach determines value by looking at recent sales of similar properties and adjusting those sale prices for differences between the subject property and the comparables. The idea is to anchor value in what buyers actually paid in the market for properties that are as similar as possible. If the subject has features that are better than a comparable, you raise the price of that comp to reflect the advantage; if the subject is weaker, you lower the comp’s price. After making these adjustments, the adjusted prices converge to an estimated value for the subject. It also sometimes accounts for changes in the market since the sale (time adjustments) to keep the value current.

This method contrasts with the other approaches: construction cost estimates value based on what it would cost to replace the property, not what buyers are willing to pay; the income approach values property based on expected rental income; and relying solely on an appraiser’s opinion lacks the market-backed data that supports price relationships.