Real Estate Appraisal Practice Exam

Which of the following is a characteristic of the sales comparison approach?

1. It considers market trends and median income

2. It involves direct competition between properties

3. It requires detailed cost estimates

4. It utilizes financial income analysis

The correct answer is: It considers market trends and median income

The sales comparison approach primarily relies on recent sales data of comparable properties to determine the value of a subject property. One of its key characteristics is that it considers market trends and median income, as these factors help appraisers assess the current real estate market conditions. By analyzing how similar properties have sold recently, appraisers can gauge the competitive landscape and the overall demand in the area, which directly influences property values. This approach does not primarily involve direct competition between properties as a standalone factor; rather, it assesses how these properties relate to each other in terms of value based on market evidence. Additionally, it does not typically require detailed cost estimates for construction or improvement, which is more characteristic of the cost approach. Lastly, financial income analysis is more relevant in the income approach to valuation, which focuses on the potential income-generating capability of a property rather than comparing sales data. Thus, understanding market trends and median income becomes essential in establishing rational sale prices through this approach.