Alabama Real Estate Practice Exam

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What is a function of the sales comparison approach?

Estimating depreciation
Calculating net operating income
Comparing property with similar properties sold recently
Determining the replacement cost

The correct answer is: Comparing property with similar properties sold recently

The sales comparison approach is used in real estate appraisal to determine the value of a property by comparing it to recently sold properties that are similar in size, location, and features. This method takes into consideration market trends, conditions, and adjustments for any differences between the subject property and the comparables. Option A is incorrect because estimating depreciation is part of the cost approach, not the sales comparison approach. Option B is incorrect because calculating net operating income is used in the income approach, not the sales comparison approach. Option D is incorrect because determining the replacement cost is used in the cost approach, not the sales comparison approach. Therefore, option C is the correct answer as it is the main function of the sales comparison approach.