Certified Residential Appraiser Practice Exam

What is regarded as the most reliable land value technique?

1. Land residual technique

2. Sales comparison

3. Ground rent technique

4. Extraction technique

The correct answer is: Sales comparison

The sales comparison approach is regarded as the most reliable land value technique because it relies on actual market data from comparable properties. This method involves analyzing recent sales of similar parcels of land in the same area, adjusting for differences in size, location, and other relevant features to arrive at a value that reflects current market conditions. This approach is particularly effective in active real estate markets where there is a sufficient number of comparable transactions to provide a robust basis for valuation. By using real sales data, the sales comparison method inherently incorporates the factors of demand and supply that influence land values, leading to a more accurate assessment of worth. While other methods like the land residual technique, ground rent technique, and extraction technique can provide useful insights and serve particular purposes, they may rely on less direct or less frequently updated data. For instance, the land residual technique estimates land value by determining the residual income that the land can produce, which can be more abstract and less directly tied to current sales than the sales comparison method. Similarly, the ground rent and extraction techniques have their applications but may not reflect the most current and relevant market dynamics as effectively as the sales comparison approach does.