Real Estate Appraisal Practice Exam

Mel is estimating the value of a depreciated item using comparable properties' sales prices. Which method is Mel using to measure depreciation?

1. Cost approach.

2. Market extraction.

3. Income approach.

4. Sales comparison approach.

The correct answer is: Market extraction.

The method that Mel is using to estimate the value of a depreciated item by examining comparable properties' sales prices is known as market extraction. This technique involves breaking down the values of sold properties to extract the contribution of specific features or conditions, including depreciation. Market extraction relies on the principle that all properties in a market are influenced by similar factors, allowing for a more accurate estimation of value based on actual sales data. While the cost approach involves calculating the cost to replace or reproduce a property minus depreciation, this is not what Mel is doing, as she is focused on comparable sales rather than replacement costs. The income approach evaluates property value based on the income it generates, and while that may consider depreciation in some forms, it does not directly reflect the method used here either. The sales comparison approach is focused on comparing the subject property to similar properties that have recently sold, but market extraction specifically hones in on how much value loss (depreciation) can be expected from various factors identified in those sales.