California Real Estate Practice Exam

Which appraisal method is most desirable for assessing so-called amenity properties?

1. Comparison approach

2. Cost approach

3. Income approach

4. Replacement cost approach

The correct answer is: Comparison approach

The comparison approach is particularly effective for evaluating amenity properties because it focuses on analyzing similar properties in the same area that have sold recently. This method takes into account the features and amenities that contribute to a property's value, such as location, size, condition, and unique characteristics. Amenity properties—often seen in luxury or recreational markets—benefit from this method as it allows appraisers to derive a more accurate value by noting the going market rates for properties with similar characteristics. Using the comparison approach ensures that any unique features or amenities, like views, outdoor spaces, or high-end finishes, are appropriately reflected in the valuation, as it relies on real market data. The income approach, while valuable for investment properties, and the cost approach, which estimates the reproduction cost of a property, may not fully account for the market’s perception of amenities. In contrast, the replacement cost approach calculates what it would cost to replace a property but ignores current market trends and dynamics. Thus, the comparison approach remains the most desirable method for these specific types of properties, allowing for accurate insights into their market value based on actual sales data.