Certified Residential Appraiser Practice Exam

What analysis technique is used by appraisers to evaluate leased properties?

1. Sales Comparison Approach

2. Cost Approach

3. Income Approach

4. Yield Approach

The correct answer is: Income Approach

The Income Approach is the appropriate technique used by appraisers to evaluate leased properties. This method focuses on the income-generating potential of a property. For leased properties, the appraiser estimates the potential income that could be generated from renting it out, often by analyzing current lease agreements, market rents, and expenses associated with the property. This approach is particularly effective for investment properties and commercial real estate, where buyers are often interested in the cash flow that the property can yield. The appraiser will typically determine the value by capitalizing the net income, considering factors like vacancy rates and expense ratios. While the Sales Comparison Approach can be useful in some contexts, it generally relies on comparable sales data rather than the income potential. The Cost Approach focuses on the value based on the cost to replace or reproduce the property, which may not accurately reflect the market dynamics for leased properties. The Yield Approach is more specialized and typically used in the context of complex investment analysis or financial modeling, rather than as a standard appraising method, making the Income Approach the most relevant here.