What is the sales comparison method an example of?

The sales comparison method is primarily an approach used in real estate appraisal that focuses on determining the value of a property based on the sale prices of similar properties. When considering this method in the context of its classification, it is viewed as an indirect method of measuring depreciation because it assesses the value of a property relative to others in the market rather than applying a direct calculation of depreciation based on physical deterioration or functional obsolescence.

By using comparable sales, appraisers can infer the value of a property based on what buyers are willing to pay for similar properties in the area. This method effectively accounts for market-driven factors, including depreciation caused by both physical condition and market conditions, influencing how properties are valued over time. Hence, it does not directly measure depreciation through a singular factor but evaluates it through a composite of market data.

This contextual understanding clarifies why the other classifications do not apply. The direct method of measuring depreciation would imply a straightforward calculation based purely on the cost or condition of the asset alone, which is not the case with the sales comparison method. Entrepreneurial profit calculations are typically used in assessing businesses, while cost estimation techniques relate to construction and development costs rather than comparative valuation in real estate. Thus, the classification of the sales comparison method as an