Certified Residential Appraiser Practice Exam

What characterizes the Sales Comparison Approach?

1. Uses only recent market trends for evaluation

2. Compares the property with similar sold properties

3. Relies solely on historical data

4. Focuses on the projected future cash flows

The correct answer is: Compares the property with similar sold properties

The Sales Comparison Approach is characterized by its method of evaluating a property by comparing it to similar properties that have recently sold in the same market area. This approach is rooted in the principle of substitution, which suggests that a buyer would not pay more for a property than what they would pay for a similar one, making the analysis of similar sales critical to establishing value. By examining recent sales data from comparable properties, appraisers can adjust values based on differences in features, location, and conditions. This comparative analysis helps to ensure that the valuation reflects current market conditions and the behavior of buyers and sellers within that specific market. The other options do not accurately define the Sales Comparison Approach. For instance, relying solely on historical data does not take into account current market dynamics, while focusing on projected future cash flows pertains more to the Income Approach. Similarly, utilizing only recent market trends bypasses the essential need for direct comparisons, which fundamentally distinguishes this approach.