When assessing the value of an REO property, which approach focuses primarily on comparable property sales?

The market approach, also known as the sales comparison approach, is specifically designed for assessing the value of real estate by comparing it to similar properties that have been sold recently. This method relies heavily on the principle of substitution, which asserts that a buyer would not pay more for a property than the cost of an equivalent substitute.

In practice, to apply the market approach, an appraiser or investor looks at various characteristics of comparable properties, such as location, size, condition, and amenities. By analyzing recent sales data from similar properties in the same area, one can derive a fair market value for the subject REO property. This approach is particularly useful in active real estate markets where there is an abundance of transaction data for comparable properties.

The cost approach, on the other hand, focuses on calculating the value based on the cost to replace or reproduce the property improvements, while the income approach is primarily used for income-producing properties, focusing on the revenue generated by the property. The investment approach is closely related to the income approach but often involves looking at the projected future earnings and returns. In summary, the market approach is most relevant for determining property values based on recent comparable sales, making it the appropriate choice in this context.