Mortgage Loan Originator (MLO) Licensing Practice Test 2026 – Your All-in-One Guide to Exam Success!

The Sales Comparison Approach is the correct answer because it involves analyzing recent sales of comparable properties to estimate the value of a subject property. This method relies on the principle of substitution, which posits that a buyer will not pay more for a property than the cost to acquire an equally desirable alternative.

In practice, an appraiser will look at properties that are similar in characteristics such as location, size, age, and features that have sold recently in the market. Adjustments are made for differences between the comparable properties and the subject property to arrive at a fair market value. This approach is widely used in residential real estate appraisals and is favored for its direct reflection of what buyers are willing to pay in a given market.

Other methods, like the Cost Approach and Income Approach, serve different purposes. The Cost Approach estimates value based on the cost to replace or reproduce a property, focusing on costs rather than comparable sales. The Income Approach, often used for investment properties, calculates value based on the income generated by the property, applying capitalization rates rather than market sales data. The Market Approach, while it may sound similar to the Sales Comparison Approach, typically encompasses a broader analysis of the real estate market trends and overall economic factors rather than a specific comparison of