Quiz 09: Sale Comparison Approach to Value
A market study shows that prices have increased by 1% per month recently. The appropriate type of adjustment to apply to the comparable property�s price is a A. percentage adjustment. B. unit of comparison adjustment. C. lump-sum dollar adjustment. D. None of the choices.
The correct answer is A.Review section " VII. CALCULATION OF PERCENTAGE ADJUSTMENTS " for details.When an adjustment is expressed as a percentage, the appraiser uses the percentage adjustment and the percentage should be converted into dollars to calculate the adjustment.
A leasehold interest includes the rights to use a property: A. under the terms of a lease B. indefinitely C. while making payments to purchase the property D. while in possession of the property
The correct answer is A.Review section "1. REAL PROPERTY RIGHTS CONVEYED" for details.A LEASEHOLD INTEREST includes the rights to use property under the terms of a lease.Appraisals of leasehold estates usually involve long-term ground leases, where the tenant has constructed a building on the leased land.
When adjustment values are not expressed in terms of dollars or percentages but by terms of relative value, it is called a: A. relative comparison analysis B. comparative valuation analysis C. quantitative comparison analysis D. paired data analysis
The correct answer is A.Review section "B. RELATIVE COMPARISON ANALYSIS" for details.Relative comparison analysis uses essentially the same procedure as paired data analysis. In RELATIVE COMPARISON ANALYSIS, however, the adjustment values are not expressed in terms of dollars or percentages, but in forms of relative value (superior, inferior, or equal).
Estimating where within the range of values the subject property's value is located is called: A. reconciling the value indicators B. ranging the values C. averaging the value indicators D. pairing the value indicators
The correct answer is A.Review section "E. RECONCILIATION OF COMPARABLE VALUE INDICATORS" for details.In RECONCILING THE VALUE INDICATORS, the appraiser estimates where within the range of values the subject property's value lies.
When the appraiser estimates where within the range of values a subject property's value lies, it is called: A. reconciling the value indicators B. data collection check C. gross adjustment D. all of the above
The correct answer is A.Review section "E. RECONCILIATION OF COMPARABLE VALUE INDICATORS" for details.In RECONCILING THE VALUE INDICATORS, the appraiser estimates where within the range of values the subject property's value lies.
If comparable sales data is inadequate or missing: A. the sales comparison approach cannot be properly applied B. the paired data analysis method can be applied C. the cost index trending method can be applied D. the quantity survey method can be applied
The correct answer is A.Review section "III. COMPARABLE SALES" for details.If data for comparable sales is inadequate, or non-existent, the sales comparison approach would tend to provide less meaningful results.
What type of adjustment is the net sum of positive and negative adjustments? A. Net B. Posi-neg C. Semi-Quasi D. Quasi
The correct answer is A.Review section "IX. RECONCILIATION" for details.NET ADJUSTMENT is the net sum of positive and negative adjustments. This is the figure that is added to (or subtracted from) the sales price of the comparable, to result in the final indicator of value for the subject property.
If a comparable is superior to the subject in some respect: A. the comparable is adjusted downward B. the comparable is adjusted upward C. the comparable is adjusted to the market norm D. the comparable is adjusted to the highest and best use
The correct answer is A.Review section "PAIDED DATA ANALYSIS" for details.Adjustments are made to the prices of the comparables. If a comparable is superior to the subject in some respect, its price is adjusted downward (minus adjustment). If the comparable is inferior to the subject, its price is adjusted upward (plus adjustment).
Which of the following techniques can be used to estimate the amount of an adjustment to be applied in the sales comparison analysis if little to no market data exists? A. Markey Survey Analysis B. Sale Price Differential Analysis C. Rent Differential Analysis D. All of the above answers.
The correct answer is A.Review section "VIX. Adjustment Techniques" for details.Simply because no sale or listing data exists does not mean that there is not a market perception regarding the value, or the amount of negative influence, of a particular property characteristic. Since an adjustment for a property characteristic is based upon the market�s perception, surveying market participants can indicate how much to apply in an adjustment for a particular property characteristic.
If market conditions have changed between the date of a comparable sale and the effective date of an appraisal: A. the comparable must be rejected B. an adjustment must be made to account for this fact C. the date of the sale can be changed to better match the appraisal. D. all of the above
The correct answer is B.Review section "5. MARKET CONDITIONS" for details.If market conditions have changed between the date of the comparable sale and the effective date of the appraisal, an adjustment must be made to account for this fact.The closer a comparable sale is to the effective date of the appraisal, the more reliable it will be as a value indicator.
A technique often used to measure the effect on value that is caused by differences in a single element of comparison is called: A. comparative market analysis averaging B. paired data analysis C. bracketing analysis D. interpolation
The correct answer is B.Review section "A. PAIRED DATA ANALYSIS" for details.PAIRED DATA ANALYSIS (also known as "matched pairs analysis," or "paired data set analysis") is a technique for measuring the effect on value that is caused by differences in a single element of comparison.
Appraisers use matched-pair analysis to determine a value adjustment: A. For any element of comparison, except physical features B. For most elements of comparison, except those that can't be quantified C. For only qualitative comparisons that are subjective, such as condition D. when there is little to not comparable market data available.
The correct answer is B.Review section "A. PAIRED DATA ANALYSIS" for details.PAIRED DATA ANALYSIS (also known as �matched pairs analysis,� or �paired data set analysis�) is a technique for measuring the effect on value that is caused by differences in a single element of comparison. The process involves identifying properties that are identical (or very similar) in all aspects except one
The purpose of verifying with a party to a transaction is to A. Confirm your opinion of value B. Improve the reliability of your market data C. Comply with a rigid requirement D. Establish the motives of the seller
The correct answer is B.Review section "B. VERIFICATION OF DATA" for details.The appraiser must verify the data that will be used. Not only does verification establish the reliability of the data, it also allows the appraiser to determine the circumstances surrounding the transaction. For example, if the buyer or seller was not typically motivated, the transaction may not have been at arm�s length and will not be a reliable value indicator.
According to what principle will a buyer not pay more for a property than it would cost to acquire a substitute property of equal utility? A. Comparison shopping B. Substitution C. Comparability D. None of the choices
The correct answer is B.Review section "I. MARKET THEORY OF VALUE" for details.According to the PRINCIPLE OF SUBSTITUTION, a buyer will not pay more for a property than it would cost to acquire a substitute property of equal utility, assuming the substitute property could be acquired within a reasonable length of time.
According to what principle will a buyer not pay more for a property than it would cost to acquire a substitute property of equal utility? A. The principle of comparison B. The principle of substitution C. The principle of anticipation D. The principle of contribution
The correct answer is B.Review section "I. MARKET THEORY OF VALUE" for details.The principle of substitution underlies both the sales comparison approach and the market theory of value. According to the PRINCIPLE OF SUBSTITUTION, a buyer will not pay more for a property than it would cost to acquire a substitute property of equal utility, assuming the substitute property could be acquired within a reasonable length of time.
For a sale to be considered comparable for purposes of the sales comparison approach to value: A. it must be located in the same neighborhood as the subject property B. it should be competitive with the subject property C. it may not include seller financing D. all of the above
The correct answer is B.Review section "III. COMPARABLE SALES" for details.For a sale to be considered comparable, it should compete with the subject property. In other words, a COMPARABLE SALE should be in the same market as the subject property and appeal to the same sorts of buyers. While the strongest comparables tend to be located in the same neighborhood as the subject, that is not a requirement. Neither is it a requirement that seller-financed loans be excluded from consideration
Which of the following is NOT a step in the sales comparison approach? A. Collection and verification of data B. Background credit check of owners C. Analysis and adjustment of comparable prices D. Reconciliation of comparable value indicators
The correct answer is B.Review section "IV. STEPS IN THE SALES COMPARISON APPROACH" for details.There are five basic steps to the sales comparison approach:1. Data collection2. Verification of data3. Selecting units of comparison4. Analysis and adjustments of comparable prices5. Reconciliation of comparable value indicators
The total dollar amount of the adjustments for the comparable, without regard to whether the adjustments are positive or negative, is called the: A. net adjustment B. gross adjustment C. preliminary adjustment D. all of the above
The correct answer is B.Review section "IX. RECONCILIATION " for details.GROSS ADJUSTMENT is the total dollar amount of the adjustments for the comparable, without regard to whether the adjustments are positive or negative.
Which of the following is NOT a source of data for comparable sales? A. County recorder's office B. tax assessor's office C. Title insurance companies D. Real estate board MLS
The correct answer is B.Review section "SOURCES OF DATA" for details.Sources of sales comparison data are:1. County Recorder's office. Maintains a file of all documents recorded in the county offices, including all deeds transferring ownership of real estate. The assessor's office has detailed maps of most lots and tracts.2. Title Insurance companies. Maintain files of all recorded county documents.3. Real Estate Board MLS. As technology increases, the number of "local boards" Multiple Listing Services (MLS) keeps consolidating. In effect, the geographical area covered by a membership keeps increasing.4. Published services. FNC, REDI. There are several publishing services that collect data about sales prices and the associated loans.5. Computerized services. On-line, such as DataQuick,
The technique used for quantitative adjustments is called: A. matched pairs analysis B. paired data analysis C. paired data set analysis D. grouped pairs analysis
The correct answer is B.Review section "VI. ADJUSTMENT TECHNIQUES" for details.The appraiser measures the difference in each element of comparison between the subject property and each comparable, either in "quantitative terms" (a dollar amount or percentage) or in "qualitative terms" (superior, inferior, or same).The technique used for quantitative adjustments is called paired data analysis; qualitative adjustments are the result of relative comparison analysis.
.Performing a search of all available sales within an area and comparing those results to those of a second search where the criteria was changed only to reflect differences in the amenity that needs to be adjusted for is called: A. Markey Survey Analysis B. Sale Price Differential Analysis C. Rent Differential Analysis D. Paired Data Analysis
The correct answer is B.Review section "VIX. Adjustment Techniques" for details.The process of performing a search of all available sales within an area and comparing those results to those of a second search where the criteria was changed only to reflect differences in the amenity that needs to be adjusted for is called a SALE PRICE DIFFERENTIAL ANALYSIS.
When the subject property is superior to a comparable property in some characteristic: A. conventional financing B. cash financing C. cash equivalent financing D. creative financing
The correct answer is C.Review section "2. FINANCING TERMS " for details.If the financing terms do not affect the price paid for the property, the financing is referred to as CASH EQUIVALENT.Sales that are cash equivalent do not require any price adjustment for financing terms. However, when financing terms are not typical of those available in the market, they will usually affect the sales price of the comparable.
When the seller offers special financing terms, what might the appraiser do? A. Discard the value indicator and seek a better one. B. Adjust the sale price using cash equivalency C. Either A or B D. Neither A nor B
The correct answer is C.Review section "2. FINANCING TERMS" for details.If the financing terms do not affect the price paid for the property, the financing is referred to as CASH EQUIVALENT. Sales that are cash equivalent do not require any price adjustment for financing terms.
The interest of the owner of leased property is called the: A. less than freehold estate B. life estate C. leased fee D. either life estate or leased fee
The correct answer is C.Review section "5. REAL PROPERTY RIGHTS CONVEYED" for details.The interest of the owner of the leased property is called the LEASED FEE
Which of the following is NOT information included on the sale data form? A. Terms of sale B. Occupancy status C. Racial and religious breakdown of neighborhood D. Personal property included in the sale
The correct answer is C.Review section "A. DATA COLLECTION " for details.The sale data form includes the following information:1. Terms of sale2. Any extenuating circumstances in the sale (imminent foreclosure)3. Description of improvements (number of rooms, baths, etc.) 4. Occupancy status5. Rental, if not owner-occupied6. Condition of property at the date of sale7. Personal property included in the sale8. Assessments or encumbrances against the property at the date of sale
Listings and refused offers are sometimes helpful because A. Asking prices suggest an upper limit of value B. Refused offers suggest a lower limit of value C. Both of these choices D. None of these choices
The correct answer is C.Review section "A. DATA COLLECTION" for details.The appraiser must gather data on comparable properties in the market. Relevant data include sales prices, listing prices, contract prices for pending sales, offering prices of pending offers. and also price on refused offers if available.
In performing a relative comparison analysis, the adjustments are expressed in terms of: A. dollars. B. percentages C. value (superior, inferior, etc.) D. All of the above
The correct answer is C.Review section "B. RELATIVE COMPARISON ANALYSIS" for details.In performing a relative comparison analysis, the adjustment values are expressed in "qualitative terms" (superior, inferior, or same).
A comparable is usually considered more reliable when it requires the least: A. net adjustment B. percentage adjustment C. gross adjustment D. dollar adjustment
The correct answer is C.Review section "IX. RECONCILIATION" for details.GROSS ADJUSTMENT is the total dollar amount of the adjustments for the comparable, without regard to whether the adjustments are positive or negative.If the gross adjustments are greater than 25 percent of the sale price of the comparable, it is likely not a comparable.
When the subject property is superior to a comparable in some characteristic: A. the subject's price is adjusted upward B. the subject's price is adjusted downward C. the comparable's price is adjusted upward D. the comparable's price is adjusted downward
The correct answer is C.Review section "VI. ADJUSTMENT TECHNIQUES " for details.Adjustments are made to the prices of the comparables. If a comparable is superior to the subject in some respect, its price is adjusted downward (minus adjustment). If the comparable is inferior to the subject, its price is adjusted upward (plus adjustment).
Which of the following is true concerning superior and inferior features of properties used as value indicators for the subject property? A. If the comparable property is superior to the subject a negative adjustment should be applied. B. If the comparable property is inferior to the subject a positive adjustment should be applied. C. If the comparable property is inferior to the subject a negative adjustment should be applied. D. Both A and B
The correct answer is D.If the comparable has a superior feature or is in any way better than the property being appraised -adjust the sale price of the comparable property downward.If the comparable property has an inferior feature or is in any way less desirable than the property being appraised�adjust the sale price of the comparable property upward.
If a seller has been transferred to another city and needs to sell his house quickly: A. he may accept a lower offer B. the price accepted may not reflect market value C. the sale is not typical and not appropriate for use as a comparable D. all of the above
The correct answer is D.Review section "1. CONDITIONS OF SALE" for details. CONDITIONS OF SALE refers to the motivations of the buyer and seller in a particular transaction. A seller who needs a quick sale may offer seller financing with below market interest or a very low down payment. Such sales are rarely used as comparables; the price paid is not a reliable indicator of market value, because the buyer and seller are acting under the influence of forces that do not affect the market in general.
An appraiser should compare the sales of similar properties with non-standard financing to sales with standard market financing in order to: A. estimate the effect of non-standard financing on price B. estimate the effect of seller financing on price C. estimate the effect of interest buy-down on price D. all of the above
The correct answer is D.Review section "2. FINANCING TERMS" for details.When financing terms are not typical of those available in the market, they will usually affect the sales price of the comparable.Non-standard financing can take a wide variety of forms, from seller financing to interest rate buy-downs to loan assumptions.
Which of the following adjustments would most likely be made first? A. Location B. Lot size C. Square footage D. Date of sale
The correct answer is D.Review section "5. MARKET CONDITIONS " for details.The sequence of adjustments depends on the appraiser's analysis of the market, but adjustments for transactional elements of comparison (such as adjustments for financing terms, conditions of sale, and market conditions) are usually made before adjustments for physical elements of comparison (such as adjustments for location, physical characteristics, etc.).
The sales comparison (or market) approach is A. the most widely used valuation approach used B. the most easily understood approach C. Based on the principle of substitution D. All of the choices
The correct answer is D.Review section "I. MARKET THEORY OF VALUE" for details.The. SALES COMPARISON APPROACH (also known as the market comparison or market data approach), the appraiser uses data from actual market transactions to arrive at an indicator of value for the subject property.The sales comparison approach is preferred because it is easy for non- professionals to understand and it is usually considered quite reliableThe principle of substitution underlies both the sales comparison approach and the market theory of value.
A comparable sale: A. must be in the same market as the subject property B. must appeal to the same sorts of buyers C. is the preferred approach for residential appraisals D. all of the choices
The correct answer is D.Review section "II. REAL ESTATE MARKET" for details.The sales comparison method is the preferred method to appraise single-family dwellings.The market must comprise of a distinct group of buyers and sellers whose actions are influenced by the forces of supply and demand. The comparables should indicate the value of other similar properties in that market.
Markets for residential property tend to: A. be smaller B. encompass neighborhoods or districts C. be international D. both A and B
The correct answer is D.Review section "II. REAL ESTATE MARKETS" for details.Markets for residential property tend to be smaller, encompassing neighborhoods or districts, while markets for large commercial properties may be national or even international.
A comparable sale should: A. operate in the same market as the subject property B. appeal to the same sorts of buyers C. compete with the subject property D. all of the above
The correct answer is D.Review section "III. COMPARABLE SALES " for details.COMPARABLE SALE must be in the same market as the subject property and appeal to the same sorts of buyers, and it should compete with the subject property
A comparable property�s sale price was adjusted upward $15,000 for its lack of a pool and down $24,000 for its superior gross building area. It was also adjusted down $10,000 for its superior city view. What is the net adjustment for this property? A. $49,000 B. $19,000 C. -$49,000 D. -$19,000
The correct answer is D.Review section "IX. RECONCILIATION" for details.GROSS ADJUSTMENT is the total dollar amount of the adjustments for the comparable, without regard to whether the adjustments are positive or negative. NET ADJUSTMENT is the net sum of positive and negative adjustments. This is the figure that is added to (or subtracted from) the sales price of the comparable, to result in the final indicator of value for the subject property. In this case, the net adjustment is calculated as follows:$15,000 -$24,000 � $10,000=-$19,000
Which adjustment is the first in the sequence of adjustments? A. Financing concessions B. Date of sale C. Physical features D. It is up to the appraiser to determine the sequence
The correct answer is D.Review section "VIII. Sequence of Adjustments" for details.It is up to the appraiser to determine the most appropriate sequence based on the appraiser�s analysis of the market. In most cases, however, adjustments that concern the comparable sales transaction (such as adjustments for real property rights conveyed, financing terms, conditions of sale, and market conditions) are made first, before adjustments concerning the comparable sale property (location, physical characteristics, etc.).
Which of the following techniques can be used to estimate the amount of an adjustment to be applied in the sales comparison analysis? A. Markey Survey Analysis B. Sale Price Differential Analysis C. Rent Differential Analysis D. All of the above answers.
The correct answer is D.Review section "VIX. Adjustment Techniques" for details.All of the techniques listed can be used to estimate the amount of an adjustment to be applied in the sales comparison approach.