Certified Residential Appraiser Practice Exam

When calculating just compensation for property, what is primarily considered?

1. Current market value

2. Potential future value

3. Investment cost

4. Replacement cost

The correct answer is: Current market value

When determining just compensation for property, the primary consideration is the current market value. This reflects the amount for which the property would sell in a competitive and open market, under normal conditions. Current market value takes into account recent sales of comparable properties, economic trends, and the condition of the property itself, providing a realistic estimate that represents what a buyer is willing to pay at the time of the assessment. In contrast, potential future value is more speculative and may not accurately represent a property's worth during the appraisal process, as it relies on assumptions about future market conditions. Investment cost focuses on the expenses incurred to acquire or improve the property, which may not correlate with its market value. Replacement cost refers to the amount it would take to replace the property with a similar one, which can be useful in determining value for insurance purposes but does not necessarily reflect what the property could sell for in the current market. Therefore, using current market value ensures that the compensation reflects a fair and equitable assessment consistent with the property's worth at the time of appraisal.