The market approach is one method of real estate valuation. which is based on comparing the property to be appraised to similar properties that have recently sold.
The market approach is based on the premise that similar properties have equal or comparable value. under the same market conditions.
To apply the market method. A real estate appraiser gathers information on similar properties that have recently sold.
Information that is typically collected includes:
- Property type, location, and size.
- Date of sale and price paid.
- Sales conditions (e.g., terms and timing).
After gathering this information. A real estate appraiser makes adjustments to the prices of similar properties. To take into account the differences between the property to be valued and similar properties.
These differences typically include:
- Differences in location.
- Differences in area.
- Differences in quality.
After making these adjustments. The market value of the property to be appraised is determined.
Advantages of the market approach:
- Based on real-world data. These are the prices of similar properties that have recently sold.
- It can be applied to all types of real estate.
Disadvantages of the market approach:
- Depends on the availability of sufficient data on similar properties.
- can be prone to deviations. If similar properties that have recently been sold are not a good representation of the property to be appraised.
