Real Estate Appraisal - Chapter 10: Sales Comparison Approach

  1. The overruling principle behind the sales comparison approach is:

    a. anticipation

    b. substitution

    c. multiplication

    d. supplication
    (b) This valuation approach relies heavily upon the principal of substitution, which states that a typical buyer in a market will pay no more for a property than what he or she could pay for a reasonable substitute. Page 276
  2. When present with two like commodities, the typical buyer will buy:

    a. the more expensive commodity

    b. the least expensive commodity

    c. both commodities

    d. neither commodity
    (b) If the perception is that there is little or no difference between two competing brands, consumers usually purchase the least expensive brand. Page 276
  3. Adjustments are applid to:

    a. the comparable properties

    b. the subject property

    c. the property being appraised

    d. both the subject and comparable properties
    (a) Comparable Property Sales Price +/- Adjustments = Adjusted Value. Page 277
  4. When is the comparison approach most applicable?

    a. When there is a sufficient number of comps

    b. When appraising property types that are bought and sold regularly

    c. When appraising vacant land

    d. All of the above
    (d) The sales comparison approach is most applicable in situations where there are a sufficient number of reliable, arm's length sales, and when appraising property types that are bought and sold on a regular basis. It is the predominant approach used when appraising single-family residences, multi-residential properties, and vacant land. page 278
  5. In which situation can the sales comparison approach be used?

    a. When appraising single-family residences, multi-residential properties, and vacant land only

    b. When appraising residential and income property

    c. Any property where sufficient comparable data is available

    d. When appraising special-purpose buildings, residential property, and qualified-income properties
    (c) The sales comparison approach is best suited for appraising single-family residences (including condominiums, small multi-residential properties, and vacant land). It is also applicable anytime sufficient sales data is available. Page 278
  6. Which of the following lists the steps for the sales comparison approach in order?

    a. Collect data, verify data, apply adjustments, reconcile values

    b. Collect data, analyze data, reconcile values, apply adjustments

    c. Analyze data, verify data, reconcile values, apply adjustments

    d. Analyze data, apply adjustments, verify data, reconcile values
    (a) although the "Analyze market data" step is missing, the remaining four steps are in correct order. he other choices are missing steps and out of order. page 281
  7. Where should appraisers collect data?

    a. MLS only

    b. MLS and the newspaper

    c. Anywhere they can get information

    d. Multiple sources that provide accurate and reliable values
    (d) In order to minimize discrepancies, inaccuracies, and incomplete records, appraisers should consult multiple data sources that provide quality data because inaccurate or incomplete data is much more susceptible to inaccurate analysis. Page 281
  8. The service that appraiser and real estate agents use to research information on properties currently for sale is called the:

    a. County Reorder's Office

    b. Multiple Regression Service

    c. Title Plant Distributor

    d. Multiple Listing Service
    (d) The Multiple Listing Services (MLS) is a services provided by local real estate boards for its members and is designed as a tool for marketing real estate. Listings are input into the MLS system to notify real estate licensees of properties available for sale. Listings include information such as the asking price and the total days the property has been on the market. Page 282
  9. The Johnsons live in a district where the tax rate is 26 mills based on 36 percent of appraised value. The Johnsons receive a $2,000 homeowners' exemption as well. About how much tax is owed if their house appraises at $335,000?

    a. $3,100

    b. $3,320

    c. $3,515

    d. $1,585

    $335,000 X 36% = $120,600 (assessed value)

    $120,600 - $2,000 = $118,600 (assessed value after exmption)

    $118,600 X .026 = $3,083 ($3,100 rounded) 

    Page 284
  10. A warehouse is subject to a property tax rate of $1,30 per $100 of assessed value. What is this property's millage rate?

    a. 26 mills

    b. 13 mills

    c. 1.3 mills

    d. .26 mills
    (b) $1.30 / 100 = .013 or 13 mills. A mill equals one-thousandth of a dollar and is numerically expressed as $0.001. Ten mills equal one cent, one-hundred mills equal ten cents, and one-thousand mills equal one dollar. Page 284
  11. Adriana is researching a property and while at the county recorder's office, she discovers that the property was assess at 40% of the purchase price with a tax rate of 30 mills. The tax bill is $4,125 annually. Using this information, Adriana concludes that this property probably sold for:

    a. $343,750

    b. $3,437,500

    c. $34,375

    d. $49,500

    $4,125 / 0.03 = $137,500 (assessed value)

    $137,500 / 0.4 = $343,750 (property value)

    Page 284
  12. As a market data resource, a party to a transaction is:

    a. a principal, like the buyer or the seller

    b. a local real estate agent

    c. other appraisers in the area

    d. all of the above
    (a) Parties to the transaction are buyers, sellers, and their brokers. Page 286
  13. Sales information for a 30,000-square foot warehouse is a good indicator of value for:

    a. high-rise office space

    b. single-family residences

    c. warehouses of similar volume

    d. none of the above
    (c) Sales information for like properties to the subject will provide the most credible, reliable, and appropriate market data for an appraisal. page 290
  14. Which of the following statements is not true in regards to comparables and geographic area?

    a. It may be necessary to consider comparables in other neighborhoods

    b. Appraisers should limit the comparables to the neighborhood of the subject

    c. Depending on the property type, an appraiser may need to look in different states for a comparable

    d. The distance an appraiser will have to go for comparable information will vary from assignment to assignment
    (b) The geographic area an appraiser would typically search for comparable sales data depends upon the nature of the real estate being appraised. If similar properties are commonly bought and sold within a neighborhood, such as single-family residences, an appraiser would typically limit the search for sales data to similar properties located within that area. On the other hand, the market for some kinds of properties may be national or even worldwide in scope. Page 288
  15. How many comparables should an appraiser use on each assignment?

    a. Three closed sales

    b. Three closed sales and three pending sales

    c. Three sales of any kind

    d. As many as it takes to arrive at a credible analysis
    (d) Most clients require a minimum of three comparable closed sales to be included in their reports. However, the more comps an appraiser can analyze, the more sound and supportable his or her conclusions will be. Therefore, an appraiser should utilize as many comps as necessary to arrive at his or her conclusion. Page 289
  16. While researching comparable properties, Frank finds an identical comp in the same tract of homes. He notes that as part of the sales agreement, the seller partially financed the sale. Frank should:

    a. use the comparable with no further action

    b. not use the comparable because it has atypical financing

    c. apply a cash equivalency formula to the comparable to adjust for the non-market financing

    d. apply a cash equivalency formula to the subject to adjust for the non-market financing
    (c) The cash equivalency technique is a procedure whereby the sale prices or comparable properties selling with atypical financing are adjusted to reflect financing that is typical in a market. page 291
  17. A comparable sold nine months ago for $268,000. The appraiser concludes that property values have increased by 5% per year. What should the adjustment be?

    a. $278,000

    b. $10,000

    c. $27,800

    d. $13,400

    • 5% / 12 = 0.4167% per month
    • 0.4167% X 9 months = 3.75% (rounded)
    • $268,000 X 3.75% = $10,050 (10,000 rounded) adjustment value.

    Page 293
  18. Locational adjustments may be based on:

    a. changes in zoning

    b. proximity to negative influences like an airport

    c. market perception

    d. all of the above
    (d) Locational adjustments may be based on changes in neighborhood (zoning, zip code, school district, et al), proximity to negative or positive influences, street orientation, and market perceptions. Pages 294 - 296
  19. If the _____ property has a feature that the _____ property does not have, _____ the value of the feature _____ the comparable price.

    a. subject, comparable, add, to

    b. comparable, subject, add, to

    c. subject, comparable, subtract, from

    d. comparable, comparable, subtract, from
    (a) If the subject property has a feature that the comparable sale lacks, add the value of that feature to the comparable. Page 301
  20. Adjustments are made on _____ basis

    a. a dollar only

    b. a percentage only

    c. a fractional

    d. both dollar and percentage
    (d) Adjustments may be made solely on the basis of percentage or dollars, or adjustments may be made by using a combination of both. The manner in which the adjustment is extracted from the market determines which way the adjustment is applied. Page 302
  21. The transaction price of a comparable property is $200,000. The appraiser determines that the comparable is 5% more desirable because of special financing; the conditions of the sale affected the subject negatively by 8%; the location of the comparable is 15% better but it is physically 5% worse than the subject; and since the comparable sold, the market has improved by 20%. What is the indicated value of the subject?
    (a) Comparables are always adjusted to mimic the amenities of the subject. The sequence of adjustments should read as follows:

    • Financing: $200,000 - 5% = $190,000
    • Conditions of sale: $190,000 - 8% = $174,800
    • Market conditions: $174,800+20% = $209,760
    • Location adjustments: $209,760 - 15% = $178,296
    • Physical characteristics: $178,296 + 5% = $187,210
    • Round the number $187,000
    • Page 303
  22. Which of the following lists the proper sequence of adjustments?

    a. Financing, seller motivation, location, time, and physical

    b. Financing, physical, seller motivation, location, and time

    c. Physical, seller motivation, location, time, and financing
    (d) The proper sequence of adjustments is financing, seller motivation, time, location, and physical. Page 309
  23. A flower shop was purchased in Summer of 2004 for $500,000. It sold in the summer of 2006 for $450,000. Using the sale-resale analysis, determine the annual rate at which this market is decreasing.

    a. 10%

    b. 1%

    c. 5%

    d. 9%
    (c) The difference between the sales prices is $50,000. Divide that figure by the original price ($500,000) to calculate the total percentage the market has declined, 10%. It has been two years, however, and the question is asking for a yearly rate. Divide the total rate by 2 to calculate the annual rate of 5%. Pages 307 - 308
  24. A comparable sold recently for $100,000 and has required a positive adjustment for locational differences of $12,000 and a negative adjustment for physical differences of $7,500. Under normal practice should an appraiser use this comp?

    a. Yes

    b. No, because it exceeds the federal guideline for single line item

    c. No because it exceeds the GNMA guideline for gross adjustments

    d. No, because it exceeds the FNMA guideline for single line item
    (d) Fannie Mae has a guideline that states a single line item adjustment should not exceed 10% of the sales price of the comparable. In this problem, the $12,000 adjustment for physical differences equals 12%. Page 313
  25. Based on the following information, is this comp acceptable?

    Selling Price: $160,000
    Bedroom Adjustment: $,000
    Fireplace Adjustment: -$3,000
    Garage Adjustment: $7,000
    Locational Adjustment: -$10,000
    Age Adjustment: $8,000

    A. Yes

    b. No, because it exceeds the federal guideline for single line item

    c. No, because it exceeds the GNMA guideline for gross adjustments

    d. No, because it exceeds the FNMA guideline for single line item
    (a) This comparable does not have a single adjustment that exceeds Fannie Mae's 10% single line adjustment guideline for gross adjustments. Pages 313 - 314
  26. Using the information from question 28, what is the adjusted value of the comparable?

    a. $196, 000

    b. $170,000

    c. $124,000

    d. $150,000
    (b) When determining the gross adjustments, ignore the positive or negative aspects of the adjustment. When applying the adjustments, pay close attention to if they are positive or negative adjustments. After the listed adjustments are applied, the adjusted value of this comparable property is $170,000. Page 314
  27. After careful analysis,Brandi determines the adjusted values for the three best comparable properties are $400,000, $425,000, and $425,000. What is the indicated value of the subject?

    a. $415,000

    b. $412,500

    c. $422,500

    d. It depends on which property or properties Brandi gives most weight in her analysis
    (d) it is appraiser's job at this point to identify which of the comparable sales is given most weight in this analysis and the reasoning why it is the one most heavily weighted. It is not proper appraisal practice simply to average the adjusted sale prices together. Sound reasoning and judgment, not mere mechanical calculation, must be used on the part of the appraiser in order to reconcile the individual value indicators into a value estimate. Page 315
Card Set
Real Estate Appraisal - Chapter 10: Sales Comparison Approach
Real Estate Appraisal - Chapter 10: Sales Comparison Approach