California Real Estate Practice Exam

Value is the present worth of future benefits, arising out of ownership, to typical users and investors. To which appraisal technique does this definition of value relate?

1. Comparison

2. Income

3. Market data

4. Reproduction cost

The correct answer is: Comparison

The definition given in the question, which states that value is the present worth of future benefits to typical users and investors, directly aligns with the income approach to appraisal. The income approach is based on the idea that the value of a property is related to the income it can generate in the future. By estimating the potential future income of a property, an appraiser can determine its present value. In contrast, the comparison approach (also known as the sales comparison approach) involves comparing the subject property to similar recently sold properties to determine its value. Market data approach relies on analyzing market data and trends to determine property value. Reproduction cost method considers the cost of reproducing a property in its current condition which may not capture the value based on future benefits as described in the question.