Appraisal

Question 1

An appraiser is hired to appraise a single-family residence as part of a purchase transaction. The subject property has 4 bedrooms and 4 bathrooms. The appraiser needs comparables to complete the appraisal, and finds 3 recently-sold properties in the same subdivision. The first comparable has 4 bedrooms and 4 bathrooms. The second comparable has 4 bedrooms and 3 bathrooms. The third comparable has 3 bedrooms and 4 bathrooms. What is a correct statement regarding the market data approach?

Answer 1

The value of a bathroom must be added to the sales price of the second comparable.

• In comparison to the single-family residence being appraised (frequently referred to as the “subject property”), the second comparable is missing a bathroom. The value of a bathroom must be added to the sales price of the second comparable so that it more accurately reflects the market value of the subject property.

Question 2

The principal of appraisal that dictates that home values tend to increase when demand increases is the principle of _____________.

Answer 2

supply and demand

• The principle of supply and demand is the oldest principle of economics; and it is also the most predictable principle. When demand for homes increase because of national economic influences (such as lower interest rates), values tend to increase. Also, when demand increases because of local changes, such as a new business coming to the area; or an influx of new residents, values will increase.