Chapter 16 Section 3

Question 1

sales comparison approach

Answer 1

-also referred to as the comparable sales approach
-used to estimate the value indicated by the recent sales of comparable properties in the market

Question 2

principle of substitution

Answer 2

-if similar or comparable properties are available for sale, the one with the lowest price will attract the greatest demand

Question 3

active market

Answer 3

-the sales comparison approach requires an active market
-if no sales have occurred, this method is not applicable

Question 4

residential properties and vacant land

Answer 4

-usually the most applicable approach for appraising residential properties and vacant land
-it is the basis for the value estimates that are used by real estate brokers and sales associates in listing and selling real estate

Question 5

step 1: locate comparable properties

Answer 5

-a comparable property is a property that is competitive with the subject property and similar in terms of design, size, location, age, and condition
-to be comparable the property should be a recent sale, preferably within the last 6 months
-a minimum of 3 to 5 comparable properties is required, but 8 to 10 is preferred

Question 6

step 2: adjust the comparable sales price

Answer 6

-adjustments to the sales price of the comparable properties are made to allow for differences between the comparable and subject property

Question 7

5 ways to make adjustments

Answer 7

-financing terms
-conditions of sale
-market conditions
-location
-physical characteristics

Question 8

financing terms

Answer 8

-if favorable terms are offered, the price may have been increased
-if prohibitive interest rates are required, the pricy may have been decreased

Question 9

conditions of sale

Answer 9

-this adjustment allows for the motives of the buyer/seller
-the appraiser makes adjustments to the sale price based on financing terms and conditions of the sale and develops a new value base for the property

Question 10

market conditions

Answer 10

-the market may have changed since the date of the sale of the comparable property
-if so, the sales price of the comparable may have to be adjusted to account for the change
-adjustments for market conditions are made to the previous value base above, which becomes the new value base for adjustments for location and physical characteristics

Question 11

location

Answer 11

-if the comparable property is in a different neighborhood than the subject property, or is influenced by different external forces, such as traffic, and adjustment for differences may be required

Question 12

physical characteristics

Answer 12

-adjustments are made for differences in the age, condition, number of baths and bedrooms, garage stalls, lot size, square footage of living space, and so on
-the final adjustments for location and physical characteristics are now applied to the value base derived in market conditions to arrive at a final adjusted price

Question 13

paired sales analysis

Answer 13

-an appraiser can estimate the value of the various physical differences by locating properties in the area, one has a particular feature and one does not
-any difference in their sales prices can be ascribed to that feature

Question 14

step 3: reconcile the adjusted sales price

Answer 14

-experience and judgement are used to weigh the adjusted sales price of each comparable property to infer an estimate of value for the subject property
-the adjusted sales prices of the comparable properties cannot be simply added and averaged
-a weighted average technique is used to determine the estimate of value