Certified Residential Appraiser Practice Exam

When is the Sales Approach most applicable in appraisal?

1. When a property has been improved recently

2. When few similar properties exist

3. When a number of similar properties have recently been sold in the subject's market

4. When the property has historic value

The correct answer is: When a number of similar properties have recently been sold in the subject's market

The Sales Approach is most applicable when a number of similar properties have recently been sold in the subject's market. This method is grounded in the principle of substitution, which posits that a property's value is influenced by the sale prices of comparable properties. When there are numerous recent sales of similar properties, it provides a rich dataset for analysis, enhancing the reliability of the valuation. The appraiser can establish a market value for the subject property based on the actual market activity, adjusting for any differences between the sold properties and the subject property to arrive at a precise value estimate. In scenarios where few similar properties exist, the Sales Approach becomes less effective due to insufficient comparables, which might lead to less accurate or skewed valuations. When a property has been improved recently, while it may indeed affect value, the presence of recent sales data would be critical to accurately reflect those changes. In cases where a property has historic value, although this can influence its worth, it might need to be assessed through different methodologies, such as the Cost Approach or the Income Approach, depending on the nature of its historic status and market interest. Thus, abundant recent sales of comparable properties is key for employing the Sales Approach successfully.