PSI Oklahoma Real Estate Practice Test

By the comparison (market data) approach to appraising, value is derived from which of the following?

1. Comparison of loans on area properties

2. Original costs of comparable properties

3. Sales of comparable properties

4. Comparison of architecture of properties

The correct answer is: Sales of comparable properties

In the comparison approach to appraising, also known as the sales comparison approach, the value of a property is determined by examining the sale prices of similar properties in the area that have recently sold. This method relies on the principle of substitution, which suggests that a buyer would not pay more for a property than the cost of acquiring an equally desirable substitute. Using sales of comparable properties provides a realistic and market-based understanding of current value because it reflects the actual prices that buyers have been willing to pay. Adjustments may be made for differences between the properties, such as size, condition, location, and features, to refine the value estimate accurately. Other options do not directly contribute to the market value in the same way. For instance, comparing loans on area properties may provide insights into financing conditions but does not inform the property’s market value. The original costs of comparable properties do not necessarily reflect current market conditions, as property values can fluctuate over time. Lastly, while architectural comparisons may help in appreciating certain aspects of a property, they do not provide a conclusive measure of market value as directly as analyzing sales data. Thus, focusing on sales of comparable properties is essential for deriving an accurate appraisal value in the market.