Real Estate Appraisal Practice Exam

When using comparable properties to estimate market price, what approach is the appraiser employing?

1. Sales comparison

2. Cost approach

3. Income approach

4. Development approach

The correct answer is: Sales comparison

When estimating market price using comparable properties, the appraiser is employing the sales comparison approach. This method involves analyzing recently sold properties that are similar to the subject property in terms of key characteristics such as location, size, features, and condition. By comparing the sales prices of these comparable properties, the appraiser can derive a reasonable estimate for the market value of the subject property. The sales comparison approach is particularly effective in residential real estate, where a sufficient number of comparable sales data is often available. It reflects current market trends and buyer preferences, making it a reliable method for determining value in markets with active transactions. On the other hand, the cost approach focuses on estimating the value based on the cost to replace or reproduce the property, less depreciation. The income approach is utilized primarily for investment properties and involves estimating the value based on the income generated from the property. The development approach relates to valuing property based on the potential for development and is less applicable when assessing market prices through comparables.