Sales Comparison Approach
Based on the following information, what is the adjustment for a corner location versus a side street? Sale A Sale B Sale C Sale Price $135,000 $110,000 $120,000 Bldg Size 1,500 SF 1,400 SF 1,500 SF Location Corner Side street Side street Lot 0.5 acre 0.5 acre 0.5 acre
$15,000
A comparable property sold for $400,000. In the sales comparison grid, it is adjusted downward 5% for financing terms, and upward 10% for conditions of sale. What is the dollar adjustment for financing terms?
$20,000
A comparable property sold for $400,000. In the sales comparison grid, it is adjusted downward 5% for financing terms, and upward 10% for conditions of sale. What is the dollar adjustment for conditions of sale?
$38,000
A comparable property sold for $400,000. In the sales comparison grid, it is adjusted downward 5% for financing terms, and upward 10% for conditions of sale. What is the net adjusted sale price?
$418,000
Property C sold for $352,000 and has 5,000 square feet of building area. Property D sold for $396,000 and has 5,880 square feet of building area. What is the indicated adjustment per square foot of building area?
$50
An appraiser concludes that an industrial building with an inadequate loading dock has an annual rent of $0.25 less per square foot than a property with an adequate loading dock. If the gross income multiplier is 6, what would be the dollar adjustment on a 40,000 square foot warehouse with an inadequate loading dock?
$60,000
Property E sold for $827,500 and has 9,885 square feet of building area. Property F sold for $752,000 and has 8,700 square feet of building area. What is the indicated adjustment per square foot of building area?
$64
An appraiser makes the following adjustments to Comparable Sale 1: +28,000, +35,000, -12,000, +8,000, -15,500. What is the gross adjustment?
$98,500
The subject has 4,800 square feet, and Comparable Sale 1 has 4,400 square feet. You are trying to extract an adjustment for size. Property C sold for $352,000 and has 5,000 square feet of building area. Property D sold for $396,000 and has 5,880 square feet of building area. What is the dollar adjustment that would be made to Comparable Sale 1 for size?
+$20,000
An industrial property sold for $150,000, and its gross annual rental income is $7,500. What is the indicated GIM?
20
If a property's gross annual income is $24,000 and its sale price is $720,000, what is the indicated GIM?
30
How many intangible adjustments must be considered in a real property appraisal?
4
What is a single sample in a group?
A variable
What is the foundation of statistical analysis? Accurate data A credible hypothesis Unverified information All of these
Accurate data
What is an example of secondary data? National surveys Government information Research statistics All of these
All of these
Why is the real estate market considered inefficient? The real estate market is complex. Because of the lack of readily available information during many of the various levels of a transaction. It takes a relatively long time to improve a parcel of real estate. All of these are reasons why the real estate market is inefficient.
All of these
What does the GIM reflect?
All the factors that market participants consider when pricing properties
Which best describes the paired sales technique?
An appraiser locates several sales that are similar except for one feature and pairs them to extract an adjustment
What is the present worth of revenue or other benefits expected in the future?
Anticipation
An appraiser may reconcile to what type of indicated value by the Sales Comparison Approach? Single-point value Range of values Relationship to a numerical benchmark Any of these
Any of these
How should each sale be verified? Personal visit Communication by email or text message Phone call Any of these
Any of these
If non-comparability is an issue with one or two sales in the Sales Comparison Approach: The appraiser may discard the sales The appraiser may give the less comparable sales lesser weight in final reconciliation The appraiser may replace the sales with more similar properties Any or all of these is true
Any or all of these are true
Two appraisers are analyzing capitalization rates by statistical analysis. Appraiser A is examining 18 capitalization rates. Appraiser B is examining 40 capitalization rates. What does the central limit theorem state about these appraisers' analyses?
Appraiser B's sample size is larger, and accuracy is therefore increased.
Appraiser A and Appraiser B are appraising the same property, and they use the same comparable sales, but make different adjustments. Which statement is true regarding this situation?
Both appraisers may be right, if they have supported for their adjustments
When using sale price per square foot as a unit of comparison, an appraiser should:
Bracket the subject's square footage
When estimating adjustments based on the cost of a feature or item:
Careful analysis of the relationship between cost and value is necessary
The Concentric Zone Model includes which zones?
Commuter, residential, working class, transition, factory, Loop or Central Business District
A building owner installs a new "green" roof on the structure at a cost of $300,000. The value of the building only increases by $200,000 as a result of the new roof. This demonstrates which economic principle?
Contribution
If there is an undersupply of new homes in a market, __________ will remain relatively stable.
Cost
What is the motivation of an individual, group of persons, or business entity involving the purchase of an item?
Desire
An appraiser finds a comparable sale in the local MLS. This sale also appears in the county deed records. During the verification process, the appraiser discovers that the buyer of the property was the grandson of the seller. What should the appraiser do with this sale?
Disregard it or set it aside
A large, old, dilapidated commercial building sits in an economically depressed section of the city. There are no market participants who have the financial capability to renovate and use such a large building. This is an example of what force?
Economic
Which methods are most appropriate to the Sales Comparison Approach?
Economics and statistics
The elements of comparison adjust the comparable sales by:
Either a percentage or a dollar adjustment
Factors that have an effect on the sale prices or value of comparable properties are known as _________
Elements of comparison
The Sales Comparison Approach is what type of investigation
Empirical
What is the principle which holds that in a bell-shaped curve, 68% of the observations will fall within one standard deviation of the mean?
Empirical rule
Examples of variables that could be used in applying statistical analysis to real property appraisal could include all of these EXCEPT: Sale price of the property Ethnic makeup of the neighborhood Square footage of a building Contract rent per square foot
Ethnic makeup of the neighborhood
Which statement is true regarding sale dates of comparable sales and adjustments for market conditions (time)?
Even recent sales may require time adjustments
How can an appraiser best deal with errors that sometimes occur when extracting adjustments using the paired sales technique?
Examine several pairs of sales
The appraisal development process and appraisal reporting process are considered to be one function.
False
Utilities and their availability are essential to every market analysis and highest and best use opinion, but rarely require adjustments in the sales comparison approach.
False
Value is a fact or estimate of fact.
False
What are the most common units of comparison for income-producing properties?
GIM and GRM
An appraiser is valuing a small apartment building. The appraiser gathers information on demographics and employment trends, which is useful in analyzing the market. This would be considered what type of data?
General data
If an appraiser is valuing real property by sales comparison, whose actions is he or she LEAST likely to consider? Market participants Buyers Sellers Government agencies
Government Agencies
What are the forces that influence real estate markets?
Governmental, environmental, economic, and social
What is the most profitable use to which a property can be put?
Highest and best use
Which statement is FALSE regarding the use of listings as comparables in the Sales Comparison Approach? Listings can serve to provide an indication of value, especially if there is a reliable market-based ratio between list price and sale price. An appraiser can gain market information by discussing unsold listings with an agent or broker. In areas where sales data are limited, listings can be used in place of sales. Listings can be useful in establishing the upper limit of a property's value.
In areas where sales data are limited, listings can be used in place of sales
What are the necessary components in using gross income multiplier?
Income and sale price
In a study which indicates that spending more hours on an appraisal assignment equates to higher customer satisfaction, the number of hours spent would be considered the _________ variable.
Independent
What is the greatest weakness in using GIM as a unit of comparison?
It is simplistic, and may not fully address vacancy or expenses
The most probable price that a property should sell for, under a fair sale, with each party acting prudently and knowledgeably is the definition of what term?
Market value
Which statement is TRUE regarding appraisers and value? All appraisals are made for the purpose of estimating market value. Market value is synonymous with investment value, assessed value, and liquidation value. Market value is only one type of value; appraisers estimate other types of value as well. Value is a fact and it is the appraiser's job to discover this fact.
Market value is only one type of value; appraisers estimate other types of value as well.
A comparable sale that requires a location adjustment:
May be a meaningful indicator of value for the subject
When applying gross rent multiplier (GRM), what type of rental rate is used when appraising one-to-four-family residential properties?
Monthly
After Hurricane Katrina, why were prices of warehouse buildings in New Orleans related much more strongly to the size of the lot rather than the size of the building?
Most buildings were flooded and of little or no use.
The subject property has expensive, energy-efficient windows, but Comparable Sale 1 does not. Which statement is true regarding this situation?
No adjustment may be necessary, if the market does not recognize a difference in value based on the efficient windows.
The criteria for highest and best use include all of the following EXCEPT: No undue stimulus Financially feasible Legally permissible Maximally productive
No undue stimulus
When appraising office buildings, an appraiser often categorizes these buildings into classes (Class A, Class B, Class C). This is an example of _______ measurement.
Ordinal
A variable that falls outside the parameters of what can be expected is referred to as a(n) _________.
Outlier
Which of these is not another name for paired sales technique? Paired regression analysis Paired data analysis Matched pairs analysis Paired sales analysis
Paired regression analysis
In a competitive market, ________ will function to equalize the quantity demanded by consumers and the quantity supplied by producers.
Price
What would be the most common unit of comparison used in valuing an improved retail commercial property?
Price per square foot of gross building area
Appraiser Abigail is appraising a newer, high-tech steel mill. In delineating her market, which of these should she most likely consider?
Properties within a region or several-state area
In an appraisal, an appraiser is making adjustments for both property rights conveyed and financing terms. Which adjustment should be made first?
Property rights
When analyzing an apartment building, an appraiser notes that it is located in a busy urban location, near a bus line. This is an example of _______ data.
Qualitative
The land, and everything permanently attached thereto, is the definition of what term?
Real Estate
When considering legal permissibility and current land use regulations, an appraiser must also consider __________.
Reasonably probable modifications of land use regulations
Margot is appraising a vacant site which is suitable for commercial development. In selecting comparable sales, what would likely be her most important consideration?
Sales should have the same highest and best use
In analyzing the local market, Charles uses data that was gathered and published by his local Chamber of Commerce. This would be considered _________.
Secondary data
What is meant by the statement "real estate is heterogeneous"?
Seldom is there an exact replica that sells at the same time with the same terms as the subject property
Which of these is NOT a test criterion for highest and best use?
Socially acceptable
An appraiser inspects a subject property, which is a vacant apartment building. The appraiser's measurements and field notes from the inspection would be considered what type of data?
Specific data
Harry is preparing a real property appraisal report for his client. Which USPAP Standard must he follow when preparing this report?
Standard 2
What helps appraisers understand and apply accurate analysis in the evaluation of real estate? Government information Statistical techniques Old reports of the same subject property Mentoring with an inexperienced appraiser
Statistical techniques
The Sales Comparison Approach is primarily based on what principle?
Substitution
Which principle equally applies to residential and commercial properties?
Substitution
Which statement regarding the Sales Comparison Approach is true? The Sales Comparison Approach is generally the best approach to appraise an owner-occupied property that is not producing income. The Sales Comparison Approach is not commonly used in the appraisal of non-residential property. The Sales Comparison Approach is only applicable in the appraisal of residential properties. The Sales Comparison Approach is the best approach in all appraisal situations.
The Sales Comparison Approach is generally the best approach to appraise an owner-occupied property that is not producing income.
An appraiser is valuing a commercial building. The owner recently had the parking lot paved at a cost of $50,000. Comparable Sale 2 has a gravel parking area. Which statement is the most correct regarding the adjustment for the paved parking area?
The adjustment may be less than the cost, the same as the cost, or more than the cost, depending on the market.
Which statement is FALSE regarding the Sales Comparison Approach?
The approach is always localized, regional and national data is not used
The subject industrial building has low ceilings which limit its functional utility. One of the comparable sales has much higher ceilings, and is more useable. What type of adjustment should be made in the sales comparison approach?
The comparable should be adjusted down to the subject
The subject property has ample parking; however, a comparable sale has a shortage of parking which affected its sale price. In the sales comparison approach, what type of adjustment should be made?
The comparable should be adjusted up to the subject
A property being appraised has a debt coverage ratio of 1.1. What does this mean?
The property generates enough income to make the mortgage payment
Which phrase is an example of economic equilibrium?
The quantity demanded is equal to the quantity supplied
Boris loans $1,000 to his friend for a one-year period, after which his friend promises to pay him back $1,100. What principle does this demonstrate?
Time value of money
What is the primary purpose of the Sales Comparison Approach?
To produce a value indication for the subject property
An appraiser values a bar/restaurant property, and includes the stools, signs, and beverage coolers. These items would be considered ____________.
Trade fixtures
In the Sales Comparison Approach, an appraiser should never simply average the indicated values of the comparable sales.
True
The Sales Comparison Approach is most effective when the subject and comparable sales all have the same potential highest and best use.
True
The expense of labor and materials must be equal to or less than value if the construction of a building is economically feasible.
True
Which statement is TRUE regarding the role of USPAP in appraisal development and reporting?
USPAP STANDARD 1 governs development, while STANDARD 2 governs reporting.
The Sales Comparison Approach would be most useful in valuing which property?
Undeveloped land
When valuing a piece of vacant industrial land, an appraiser decides to appraise it based on value per square foot. This is an example of ____________.
Unit of comparison
Adjustments for tangible property differences may include:
View
What adds the most value to land and the improvements?
When the property is used for its highest and best use
Carole is appraising a vacant land parcel which can be used for residential, commercial, or industrial use. What is the highest and best use of the property?
cannot determine from the information provided
What kind of data is observed, but not measured?
qualitative data
What kind of data is measured?
quantitative data
Which market is inefficient?
real estate market