Certified Pennsylvania Evaluator Practice Exam

What are the two approaches used for valuing land?

1. Cost and Income

2. Income and Sale Comparison

3. Market and Cost

4. Sales and Comparative

The correct answer is: Income and Sale Comparison

The two primary approaches used for valuing land are the income approach and the sales comparison approach. The income approach considers the potential income that the land could generate, such as rental income or income from agricultural use. It incorporates an analysis of the expected returns, discount rates, and capitalization rates to estimate the property's current value based on its income-generating potential. On the other hand, the sales comparison approach, also known as the market approach, evaluates the value of the land by comparing it to similar properties that have recently sold in the same market. This method relies on the principle of substitution, which posits that a buyer would not pay more for a property than what it would cost to purchase a comparable one. Together, these two methods provide a comprehensive framework for assessing land value, allowing for a well-rounded estimation based on both potential income and market conditions. Other options presented do not accurately describe the primary approaches used in land valuation, as they may mix different methodologies or terms that are not standard in land appraisal practices.