Certified Residential Appraiser Practice Exam

Which valuation approach emphasizes current market conditions and sales data?

1. Cost Approach

2. Income Approach

3. Sales Comparison Approach

4. Residual Approach

The correct answer is: Sales Comparison Approach

The Sales Comparison Approach is the most effective method for valuing residential properties because it directly uses current market conditions and comparable sales data to establish value. This approach involves assessing recent sales of similar properties in the same geographic area, making adjustments for differences between the subject property and the comparables to arrive at a fair market value. This contrasts with the other valuation approaches. The Cost Approach focuses on estimating the current cost to construct a similar property minus depreciation, and while it can provide insights into value, it does not rely solely on current market conditions. The Income Approach is primarily used for investment properties and emphasizes the potential income generation of a property rather than direct sales data. The Residual Approach is typically applied in development scenarios calculating land value based on the profits after accounting for development costs, which again doesn’t focus on current sales data. Thus, the Sales Comparison Approach is the method that places the most significance on actual sales data and reflects the current state of the real estate market.