PSI Virginia Real Estate Practice Exam

What is the primary focus of the Sales Comparison Approach in property valuation?

1. To evaluate historical purchasing trends

2. To compare recently-sold similar properties

3. To determine potential rental income

4. To analyze economic forecasts of property values

The correct answer is: To compare recently-sold similar properties

The Sales Comparison Approach primarily focuses on comparing recently-sold properties that are similar in characteristics to the subject property being valued. This method relies on the principle of substitution, which asserts that a buyer will not pay more for a property than the amount it would cost to acquire a comparable property. This approach involves analyzing sales data of comparable properties in the same area, taking into account differences such as location, size, condition, and features. By adjusting the sale prices of these comparable properties to reflect the differences, appraisers can estimate the market value of the subject property. This method is particularly useful in residential real estate, as it provides a direct indication of how much a buyer is willing to pay based on recent market activity. It is more effective when there is a sufficient number of comparable sales available within a reasonable timeframe, ensuring the valuation reflects current market conditions.