Module 15

Question 1

The process of deriving a value indication for the subject property by comparing sales of similar properties to the property being appraised, identifying appropriate units of comparison, and making adjustments to the sale prices (or unit prices, as appropriate) of the comparable properties based on relevant, market-derived elements of comparison.

Answer 1

Sales comparison approach

Question 2

Only properties with a highest and best use similar to the subject property should be considered comparable. Properties are compared on the basis of their use.

Answer 2

Highest and best use

Question 3

Properties are compared on the basis of their

Answer 3

use.

Question 4

Buyers constitute market demand and the properties offered for sale make up the supply. If demand is high, prices tend to increase and vice versa. Shifts in supply frequently lag behind shifts in demand.

Answer 4

Supply and demand

Question 5

This principle affirms that the value of a property tends to be set by the price that would be paid to acquire a substitute property of equal utility and desirability, within a reasonable amount of time. Substitution is what makes the sales comparison approach possible.

Answer 5

Substitution

Question 6

The relationship between land and improvements and between a property and its environment must be in balance for a property to achieve its optimum value.

Answer 6

Balance

Question 7

The positive and negative external forces that affect all types of properties.

Answer 7

Externalities

Question 8

When is the sales comparison approach applicable?

Answer 8

Most appraisers would agree that it has the most applicability when there is an active market for the property type and sufficient data from which to develop a credible value opinion is available.

Question 9

The main limitation of this approach is its

Answer 9

dependence on data

Question 10

Data on properties comparable to the subject property can be derived from
the following—and ideally in this order

Answer 10

a. Closed sales
b. Contracts on current sales that have not yet closed
c. Offers and refusals can give an indication of market interaction.

d. Active listings. The appraiser can examine the current competition and price levels of competitive properties. The time between listing and sale
(closing) can give an indication of the exposure time and reasonable exposure time for similar properties to the subject currently on the market.

e. Expired and cancelled listings also provide insight into the market direction and trends.
f. Options are another part of effective demand. If the options are exercised, more properties are removed from the supply.

Question 11

There are five steps to the sales comparison approach:

Answer 11

Research the market for information on transactions, listings, and other offerings of properties similar to the subject

To some degree, all data must be verified to make sure it is true and factual.

Select relevant units of comparison and develop a comparative analysis for each unit.

Compare the comparable sale properties with the subject using the elements of comparison and adjust the sale price of each comparable appropriately.

Reconcile multiple indications of value for the subject property into a single value indication or range of values.

Question 12

Elements of comparison

Answer 12

a. Real property rights conveyed
b. Financing terms
c. Conditions of the sale
d. Expenditures made immediately after purchase
e. Market conditions
f. Location
g. Relevant physical characteristics
h. Relevant economic characteristics
i. Use/zoning
j. Non-realty components of value

Question 13

Conditions of sale
An adjustment for conditions of sale may be necessary to reflect the motivations of the buyer and seller. Some situations that would require adjustments include:

Answer 13

The buyer or seller is in a hurry (e.g., due to a situation such as a job transfer or death in the family)
Sales between relatives
Sales between wholly-owned subsidiaries
Forced sales (e.g., foreclosures and auctions)

Question 14

A transaction between unrelated parties who are each acting in his or her own best interest.

Answer 14

Arm’s-length transaction

Question 15

If there is something wrong with the property when it sold, buyers will take that into account when considering market value. Some appraisers may make this adjustment before considering any others.

Answer 15

Expenditures made immediately after purchase

Question 16

Market conditions are sometimes referred to as

Answer 16

a time adjustment.

Question 17

Market Conditions Addendum (Form 1004MC) was introduced in response to

***** Fannie Mae no longer requires appraisers to use form 1004MC.

Answer 17

the 2008 housing crisis to provide a standardized mechanism for appraisers to analyze and report changes in market conditions. This enabled lenders to make prudent lending decisions in appreciating, stable, or declining markets.

Question 18

The value added or lost by the presence or absence of a differing item in a comparable property does not usually equal the cost of installing or removing the item. Appraisers make the adjustment according to

Answer 18

the contributory value of the item or component

Question 19

Economic characteristics include

Answer 19

all the relevant attributes of a property that affect its net operating income (NOI), such as:

Operating expenses
Quality of management
Tenant mix
Rent concessions
Lease terms
Relevant physical and locational characteristics

Question 20

These do not constitute real property but may be included in the sale price of either the comparable sales or the subject. These can include furniture, fixtures, and equipment.

Answer 20

Non-realty components

Question 21

Which of the following statements best describes the sales comparison approach?

Answer 21

a set of procedures based on the comparison of similar properties that have sold recently
The sales comparison approach is a set of procedures in which a value is derived by comparing the property being appraised to similar properties that have been sold recently.

Question 22

What are units of comparison?

Answer 22

items that represent a breakdown of the price based on a significant variable
Units of comparison are items that represent a breakdown of the sale price based on a significant variable, usually expressed in terms of price per unit.

Question 23

Which of the following group are more concerned with an opinion of market value derived from the sales comparison approach?

Answer 23

well-informed purchasers
An opinion of market value derived from the sales comparison approach is seen through the eyes of well-informed purchasers.

Question 24

For which of the following reasons, a market conditions adjustment is applied in some situations?

Answer 24

The market has changed since the comparable property sold.
An adjustment for market conditions is sometimes referred to as a “time adjustment.” In reality, it is not time that requires the adjustment, but the changes in the market during the passage of time.

Question 25

What unit of comparison is appropriate in the appraisal of a hotel?

Answer 25

D. price per guest room