What is involved in finding comparable properties and adjusting for material differences?

Finding comparable properties and adjusting for material differences is primarily associated with the sales comparison approach. This method involves analyzing the prices of properties that are similar to the subject property in order to establish a fair market value. The sales comparison approach relies on the principle of substitution, which states that a buyer will not pay more for a property than the cost of an equally desirable substitute.

In practice, this process entails identifying comparable properties—also known as "comps”—that have recently sold in the same area. These properties are then evaluated for differences that could affect their market values, such as size, condition, location, and features. Adjustments are made to the sale prices of the comparables to account for these material differences, which helps in arriving at an accurate estimate for the subject property.

While other approaches, such as the cost approach and the income approach, are valuable in different contexts, they do not specifically focus on the adjustment of comparable properties based on material differences. The cost approach estimates value based on the cost to replace or reproduce the property, while the income approach evaluates properties based on their income-generating potential. Market analysis may encompass a broader study of various market conditions and trends without specifically concentrating on the adjustments that come from comparable properties.