Question

Which real estate valuation method is likely the most appropriate for a 40-year-old, owner-occupied single-family residence? (a) Sales comparison approach (b) Cost approach (c) Income approach (d) Direct capitalization approach

Answer 1

Real estate valuation method to be used differs from each property based on its size, use, amenities etc.

In this question, it is a 40 year old owner occupied single family residence. So in such case, the sale comparison approach (otherwise called as market comparison approach) is the most appropriate method of valuing that house.

Reasons why sales comparison is much suitable are.

Income approach and direct capitalization approach depends on the income generated from the property. Since this property is going to be for personal use, it does not generates any income,  thereby these methods cannot be used for this property.

On the other hand, the cost approach is used when there is one or more buildings in one single property. This method depends on the improvement done on the existing building. So this method is also not appropriate for valuation of this property.

Sales comparison approach - In this method, the property value is estimated by comparing the price of the recently sold property with similar characters (in size, location, etc.). So in case of valuing single family land or building, which do not generate any income or for which improvemnt is not done this method is much suitable.