Certified Pennsylvania Evaluator Practice Exam

Which assessment method is most commonly used to determine property values?

1. Cost approach

2. Income approach

3. Sales comparison approach

4. Market analysis approach

The correct answer is: Sales comparison approach

The sales comparison approach is the most commonly used method for determining property values because it relies on the principle of substitution, which states that a buyer will not pay more for a property than what it would cost to purchase a similar property in the same area. This approach involves comparing the subject property to recently sold properties that are similar in characteristics such as size, location, and condition. Adjustments are made to account for differences between the properties, allowing for an accurate market value estimation. This method is particularly effective in active and competitive real estate markets where there is a wealth of comparable sales data available. It is also straightforward for buyers and sellers to understand, as it reflects actual market behavior and recent transactions. The sales comparison approach is widely accepted by appraisers, real estate agents, and financial institutions, making it the go-to choice for property valuation. While the cost approach and income approach can also provide valuable insights into property value, especially in specific contexts (such as new construction for the cost approach, or rental properties for the income approach), they do not typically reflect the market dynamics as effectively as the sales comparison approach does for most residential properties. Market analysis, while related, is broader and less focused directly on individual property valuations in comparison to the sales comparison