M1U6S2E4

Question 1

Describe the direct comparison approach

Answer 1

It’s one of 3 techniques that the appraiser uses to estimate market value. It is based on the premise that an informed buyer will pay no more for a property than the cost of getting an existing property with the same utility

Question 2

List the basic steps in applying the direct comparison approach

Answer 2

• Gather all comparable sales, listing, offers, and rentals
• Locate and check pertinent information on each
• Analyze the data regarding differences in time of sale and other factors
• Compare each sale to the subject property, making necessary adjustments
• Correlate the data and make preliminary value estimate

Question 3

List 4 qualities of good comparables

Answer 3

• Within the local market area
• At or near the date of appraisal
• Similar structure and type as the subject property
• A bone fide arm’s length transaction

Question 4

The comparable property is always adjusted to the subject property. What two important rules are utilized in the adjustment process?

Answer 4

• If the comparable is better than the subject property make a downward adjustment
• If the comparable is pooer then the subject make an upward adjustment

Question 5

Why is ‘time’ adjusted for first when applicable?

Answer 5

The property is being appraised today and the sales prices of all comparable must be adjusted to today’s date. The date of the sale of the comparable indicated market conditions at THAT time, but the date of the appraisal might indicate a different set of conditions

Question 6

List 4 advantages of the direct comparison approach

Answer 6

• It reflects market behavior
• It is widely used and understood
• It is accorded greatest weight by the courts
• It required least adjustment if a sufficient date is available

Question 7

List 4 disadvantages of the direct comparison approach

Answer 7

If an inadequate date is available, it may be impossible to apply

• Adjustment must be made- no 2 properties are ever identical
• Sales are always historical
• Accuracy of the method depends on the appraiser’s ability to recognize differences and make proper adjustments

Question 8

Briefly describe the 2 commonly used methods of adjusting for differences between the subject property and comparable properties

Answer 8

Plus or Minus Dollar Adjustment: This is the method that is most easily understood. The appraiser estimates a dollar amount allocated to the factor of adjustment to indicate what the typical buyer would pay under the current market conditions for the item being adjusted for.
Plus or Minus Percentage Adjustments: More appropriate method for certain types of adjustments. With percentage adjustments its important to remeber to make calculations on the time adjusted price, not the sale price.