Certified Residential Appraiser Practice Exam

In the cost approach, how is land value reconciled?

1. From comparable rents

2. From sales or analytical techniques

3. From lease terms

4. From income capitalization

The correct answer is: From sales or analytical techniques

In the cost approach, land value is reconciled using sales or analytical techniques. This aspect is fundamental to accurately determining the value of the land component separately from any improvements on it. The sales comparison approach, often used in the market analysis of land, involves examining recent sales transactions of similar parcels of land in the area to establish a baseline for value. Analytical techniques can also include the extraction method, where the value of improvements is subtracted from the total property value, allowing the appraiser to isolate the land value. By specifically focusing on these methods, appraisers ensure a data-supported, market-driven estimate of land value that reflects current market conditions. Other methods mentioned in the choices, such as comparable rents or income capitalization, are more relevant for valuing income-producing properties or assessing rental potential rather than directly assessing land value. Therefore, the use of sales or analytical techniques stands out as the most accurate and applicable approach for reconciling land value in the context of the cost approach.