CGA Market Analysis & Valuation 2 — Questions and Answers
Question 1: In a market analysis, which condition must be present for a sale to qualify as an arm's-length transaction?
- Buyer and seller are related parties
- Both parties act in their own best interests without undue pressure (Correct answer)
- The property is sold at foreclosure auction
- Financing is provided by the seller
Correct answer: Both parties act in their own best interests without undue pressure
An arm's-length transaction requires both parties to be independent, knowledgeable, and acting in their own best interests without compulsion.
Question 2: Which adjustment in the sales comparison approach compensates for a comparable property having a superior feature compared to the subject?
- A positive adjustment to the comparable
- A negative adjustment to the comparable (Correct answer)
- No adjustment is needed for superior features
- An upward adjustment to the subject
Correct answer: A negative adjustment to the comparable
When a comparable is superior to the subject, a negative adjustment is made to the comparable's sale price to reflect what it would have sold for without that superior feature.
Question 3: The principle of substitution states that a rational buyer will pay no more for a property than:
- Its assessed value for tax purposes
- The cost to acquire an equally desirable substitute (Correct answer)
- The average of comparable sales in the area
- The seller's original purchase price plus improvements
Correct answer: The cost to acquire an equally desirable substitute
The substitution principle holds that a buyer will not pay more for a property than the cost of acquiring an equally desirable alternative in the marketplace.
Question 4: When analyzing market conditions over time, a paired sales analysis is BEST used to isolate:
- Location adjustments between different neighborhoods
- Time adjustments reflecting market appreciation or depreciation (Correct answer)
- Size adjustments for properties of different square footage
- Age adjustments for properties built in different years
Correct answer: Time adjustments reflecting market appreciation or depreciation
Paired sales analysis compares sales of the same or very similar properties at different points in time to isolate and quantify market condition (time) adjustments.
Question 5: In a residential market analysis, 'effective demand' differs from 'potential demand' in that effective demand requires:
- Only the desire to purchase real estate
- Both the desire and the financial ability to purchase (Correct answer)
- Government approval for the purchase
- A formal written offer submitted to the seller
Correct answer: Both the desire and the financial ability to purchase
Effective demand combines purchasing desire with financial ability, distinguishing actual market participants from those who merely want but cannot afford the property.
Question 6: A property sells for $450,000. After research, the appraiser determines the transaction involved seller-paid points worth $9,000. What is the most likely cash-equivalent sale price?
- $459,000
- $441,000 (Correct answer)
- $450,000
- $445,500
Correct answer: $441,000
Seller concessions inflate the nominal sale price, so the cash-equivalent price is $450,000 − $9,000 = $441,000 to reflect what a buyer would have paid without the concession.
Question 7: Which market area delineation concept refers to the geographic area from which a subject property draws the majority of its competing supply and demand?
- Census tract
- Subject market area (SMA) (Correct answer)
- Metropolitan Statistical Area (MSA)
- Zip code boundary
Correct answer: Subject market area (SMA)
The Subject Market Area (SMA) is the specific geographic zone identified by the appraiser where competing properties and likely buyers are concentrated.
CGA Market Analysis & Valuation 2
In a market analysis, which condition must be present for a sale to qualify as an arm's-length transaction?