Texas Property Tax Consultant Practice Exam

Which approach in property valuation primarily focuses on current market sales?

1. The cost approach

2. The sales comparison approach

3. The income approach

4. The market analysis approach

The correct answer is: The sales comparison approach

The sales comparison approach is focused on current market sales as a primary method for assessing property value. This approach involves analyzing the sale prices of comparable properties that have recently sold in the same market area. By comparing similar properties with features such as size, location, and condition, property appraisers can estimate the value of the property in question. This method reflects the most current market conditions, making it particularly effective in volatile markets where property values can change rapidly. Utilizing this approach allows for a direct reflection of buyer behavior and market dynamics, as it is grounded in actual transactions. It emphasizes the significance of what buyers are willing to pay for similar properties, which provides a reliable benchmark for establishing value. In contrast, the cost approach relies on estimating the cost to replace or reproduce the property, plus the value of the land, rather than actual sales data. The income approach, primarily used for investment properties, involves capitalizing the income generated by the property to determine its value. Lastly, the market analysis approach could include examining various market indicators and trends but does not solely focus on current sales comparatives like the sales comparison approach does.