Certified Residential Appraiser Practice Exam

Which approach to property valuation emphasizes the comparison of similar sales?

1. Cost Approach

2. Income Capitalization Approach

3. Sales Comparison Approach

4. Land Residual Technique

The correct answer is: Sales Comparison Approach

The approach to property valuation that emphasizes the comparison of similar sales is the Sales Comparison Approach. This method relies on analyzing recent sales of comparable properties, often referred to as "comps," to determine the value of the property being appraised. By examining the sale prices of these similar properties, appraisers can derive a value estimate for the subject property based on how much buyers are willing to pay for comparable homes in the same market. This approach is especially useful in residential appraisals because it reflects current market conditions and buyer preferences, providing a direct correlation to what buyers have recently paid for similar properties. Factors considered in this approach include location, size, condition, and features of the properties involved in the comparison. In contrast, the Cost Approach focuses on determining the value based on the cost to reproduce or replace the property, which may not necessarily reflect current market conditions or buyer behavior. The Income Capitalization Approach looks at the property’s ability to generate income, mainly used for investment properties rather than residential. The Land Residual Technique derives the value of land from the income generated by improvements, typically utilized in specialized commercial applications rather than in standard residential valuation. Thus, the Sales Comparison Approach stands out for its direct correlation to market trends and sales activity among