Which approach involves analyzing sales of similar properties to determine value?

The response indicating that the correct approach is the market data approach is accurate because this method relies on comparing the subject property to recently sold similar properties, known as comparables or "comps." By analyzing these sales, the appraiser can determine a fair market value based on the prices that buyers have paid for similar properties within the same market conditions. This approach is particularly useful in residential real estate where there are often many comparable sales available to assess.

The market data approach stands out as it takes into account the actual prices paid in the real estate market, reflecting supply and demand factors. It emphasizes real-world transactions, making it a primary method for determining property values, especially in active markets.

In contrast, the cost approach derives value by estimating the cost to replace or reproduce the property and then subtracting depreciation. The income approach focuses on the income-producing potential of a property, relevant primarily for investment properties. The comparative approach is sometimes used interchangeably with the market data approach, but it is less commonly defined in appraisal studies, which can lead to some confusion. Thus, the market data approach is the most recognized and direct method for evaluating property value through similar sales analysis.