When is the market approach typically used in appraisal?

The market approach is typically used in appraisal when there is a bank of sales of comparable properties. This method relies on the principle of substitution, which states that a buyer will not pay more for a property than the cost of a similar substitute. By analyzing the sale prices of comparable properties that have recently sold in the same market, appraisers can effectively determine the value of the subject property. This approach is particularly useful in active markets where there is sufficient data on similar properties that can be compared directly.

When appraisers have access to a robust set of comparable sales data, they can assess trends in pricing and make informed adjustments based on differences in features, location, and other relevant factors. This makes the market approach a reliable and effective method for determining property value, especially for residential properties where comparable sales occur frequently.

In contrast, scenarios where there are no comparable properties available or when estimating replacement costs may necessitate other approaches, such as the cost approach or the income approach. The requirement to consider all approaches does not emphasize the specific use of the market approach but rather underscores the broader context of appraisal practice.