Mortgage Loan Originator (MLO) Licensing Practice Test

Which type of approach is NOT typically used in the appraisal of vacant land?

1. Cost Approach

2. Income Approach

3. Sales Comparison Approach

4. Market Approach

The correct answer is: Income Approach

The Income Approach is typically not used in the appraisal of vacant land because this method primarily focuses on valuing properties that generate income, such as rental properties or commercial assets. The Income Approach involves calculating the present value of anticipated future income, which is not applicable to vacant land that is not producing any income or cash flow. In contrast, the Cost Approach is useful in determining the value of land by estimating the cost to replace it, less depreciation, and can be applied to vacant land. The Sales Comparison Approach, which compares recent sales of similar properties to establish value, is particularly relevant for vacant land, as there may be available comparables to gauge the market value. The Market Approach, often synonymous with the Sales Comparison Approach, also emphasizes how similar properties are being priced in the market, making it effective for vacant land appraisal. Thus, the nature of vacant land, which lacks income production, makes the Income Approach inappropriate in this context.