Certified Residential Appraiser Practice Exam

Which of the following best describes the extraction method?

1. Determining value through income generated

2. Calculating land value based on assembled properties

3. Deriving land value from comparable land sales

4. Estimating total property value by subtracting improvements' value

The correct answer is: Estimating total property value by subtracting improvements' value

The extraction method is a valuation technique primarily used in real estate appraisal to determine the value of land. This method operates on the principle that you can derive the value of the land by estimating the total property value and then subtracting the value attributed to any improvements on that property, such as buildings or enhancements. By applying this method, appraisers essentially isolate the land's contribution to overall value by focusing on the market value of the property as a whole and deducting the value of the improvements. This approach is especially useful in situations where comparable land valuations are hard to come by, as it allows appraisers to use existing property values as a reference point. The other options do not align with the extraction method. For instance, determining value through income generated references the income approach to valuation, which is distinct from the extraction method. Calculating land value based on assembled properties involves techniques that are not specific to land extraction. Finally, deriving land value from comparable land sales relates to the sales comparison approach, another distinct appraisal method. Thus, the extraction method is aptly described by estimating total property value by subtracting the improvements' value.