Texas Real Estate State Practice Exam

What is the focus of the market data approach in real estate appraisals?

1. Comparing sales to similar properties in the area

2. Using the GRM x rent calculation

3. Considering the cost to reproduce a property

4. Assessing the economic obsolescence of a property

The correct answer is: Comparing sales to similar properties in the area

The market data approach, commonly used in real estate appraisals, primarily involves comparing sales of similar properties in the same area to establish a value for the subject property. This method emphasizes the principle of substitution, which posits that a buyer will not pay more for a property than they would for a comparable one. By analyzing recent sales data from properties that share similarities in features, size, condition, and location, appraisers can determine a fair market value based on actual market activity. This approach is particularly effective in active markets where there is a wealth of comparable sales to draw upon, making it a reliable method for determining property values. The other approaches mentioned, while also relevant in real estate valuation, do not specifically define the focus of the market data approach. The GRM x rent calculation is indicative of the income approach, which focuses on the income-generating potential of a property. Considering the cost to reproduce a property relates to the cost approach, which estimates value based on the cost to build a similar structure. Assessing economic obsolescence pertains to external factors that affect a property's value, rather than the direct comparison of recent sales. Each of these elements serves an important role in real estate valuation, but the essence of the market data approach rests