chapter 17 comparative

Question 1

Luigi is using the comparative approach of appraisal to value a house and has found a recent sale which he thinks is a good comparable to the subject property. The subject property has a swimming pool while the comparable does not. Swimming pools are a desirable amenity and a selling feature in this area. However, the subject property features a dated kitchen whereas the comparable has been updated with new appliances and stone countertops. When adjusting for these differences, he will:

1. add the value of the swimming pool to the comparable and add the value of the kitchen updates to the subject property.
2. add the value of the swimming pool to the comparable and subtract the value of the kitchen updates from the comparable.
3. add the value of the swimming pool to the comparable and subtract the value of the kitchen updates from the subject property.
4. subtract the value of the swimming pool from the subject property and add the value of the kitchen updates to the subject property.

Answer 1

Correct Answer: 2

This question requires you to adjust a comparable using the comparative approach of appraisal. The general rule when making adjustments is that the appraiser adjusts the comparables to make them identical to the subject. In this case, you would add the value of the swimming pool to the comparable, and subtract the value of kitchen updates from the comparable.

Question 2

Consider the following statements with respect to the comparative approach of appraisal.

A. An appraiser can use the consumer price index to adjust a non-recent sale price to the appropriate level of value at the appraisal date because changes in the value of consumer products usually coincide with changes in the value of property.

B. Common area charges need not be included in the market value of a condominium unit because these charges are market related and are standard from project to project.

C. One problem in applying the comparative approach is the difficulty in establishing similarity. This problem is compounded when there are few comparable properties.

D. No adjustments for value are required for vendor takeback mortgages where the contract rate of interest is different from the prevailing market rate of interest given the stable and low market interest rate environment of recent years.

Which of the above statements are FALSE?

1. A and C only
2. C and D only
3. A, B, and D only
4. All of the above

Answer 2

Correct Answer: 3

Statements A, B, and D are false. Statement A is false because general price indices such as the consumer price index are irrelevant to the appraisal of one particular property since changes in the value of consumer products are not necessarily the same as changes in the value of property. Statement B is false because common area charges need to be included since they are not standard, rather they vary from project to project. Statement D is false because a differential in the contract rate and market rate (notwithstanding a stable and low interest rate environment), requires a finance adjustment to make it comparable with the subject property.

Question 3

Which of the following statements is/are TRUE?

A. In property appraisal, “recent” refers to a time period where the market is relatively stable.

B. When determining market value using the comparative approach of appraisal, it is not necessary that recently sold comparables be similar to the subject property in every respect.

C. The total size of the lot rather than its frontage is a more important consideration when considering the site.

D. There is no certainty as to whether corner lots have greater or less value than inside lots.

1. D only
2. A and D only
3. A, B, and C only
4. A, B, and D only

Answer 3

Correct Answer: 4

Statements A, B, and D are true. Since houses are built parallel to the street, the frontage is a more important consideration rather that total area or depth. The value of the lot varies directly with frontage than with area or depth.

Question 4

Which of the following factors should be considered when using the comparative method of appraisal to value a house?

A. Whether the comparables being used can be classified as “recent” sales
B. If there is an adequate number of comparables that can be used for comparison
C. Whether the dimensions of a comparable property’s lot are different than the subject property’s lot
D. Whether or not the comparables are similar to the subject with respect to legal title

1. A, B, and D only
2. D only
3. A and B only
4. All of the above factors should be considered.

Answer 4

Correct Answer: 4

There are various factors that are important when appraising a house using the comparative method. The time of the sale and the number of comparables available are very important. Also, the dimensions, not just the area, are important. For example, if a property has the same area, but a different depth, this means the frontage will be different, resulting in an incorrect comparison. Finally, comparables must have similar title status to be comparable. For example, one house with an easement and one without may not be comparable.