Hawaii Pre-Licensing National Practice Exam

Which method might be employed for valuing a property in a rapidly changing market?

1. Cost approach

2. Income approach

3. Direct sales comparison approach

4. Valuation by appraisal review

The correct answer is: Direct sales comparison approach

In a rapidly changing market, the direct sales comparison approach is particularly effective for valuing a property because it relies on current market data. This method involves comparing the property in question to similar properties that have recently sold in the area, adjusting for differences in features, conditions, and timing of sales. This approach captures the most up-to-date trends in property values, reflecting the dynamic nature of the market. By focusing on actual sales data, the direct sales comparison approach provides a clear picture of how much buyers are currently willing to pay for similar properties, making it highly relevant in fast-moving market conditions. It enables appraisers and real estate professionals to gauge shifts in market sentiment and price adjustments that may not be fully reflected in other valuation methods, such as the cost approach or income approach, which may rely more heavily on historical data or assumptions about future income rather than current market indicators.