CGA Sales Comparison Approach 2 — Questions and Answers
Question 1: When an appraiser makes a paired sales analysis, the primary purpose is to:
- Determine the cost to reproduce the improvements
- Isolate and quantify the contribution of a single property feature (Correct answer)
- Establish the capitalization rate for income properties
- Reconcile the three approaches to value
Correct answer: Isolate and quantify the contribution of a single property feature
Paired sales analysis isolates a single variable by comparing two sales that are identical in all respects except the feature being measured.
Question 2: A comparable sale closed 18 months ago and market prices have risen 6% annually. The appropriate time adjustment to the comparable's sale price is:
- +9% (Correct answer)
- -9%
- +6%
- -6%
Correct answer: +9%
An 18-month (1.5-year) appreciation at 6% per year requires a +9% upward adjustment to bring the older comparable to current market conditions.
Question 3: The term 'transactional adjustment' in the sales comparison approach refers to adjustments for:
- Physical differences such as room count and lot size
- Location differences between the subject and comparable
- Conditions of sale, financing terms, and market conditions (Correct answer)
- Depreciation and functional obsolescence
Correct answer: Conditions of sale, financing terms, and market conditions
Transactional adjustments address non-physical factors affecting price, including atypical financing, motivation, and changes in market conditions over time.
Question 4: Which condition would most likely require a downward adjustment to a comparable sale's price?
- The comparable has a smaller garage than the subject
- The comparable is in a superior location to the subject (Correct answer)
- The comparable sold under duress (foreclosure)
- The comparable has fewer bathrooms than the subject
Correct answer: The comparable is in a superior location to the subject
A comparable in a superior location sold for more than the subject would; a downward adjustment brings its price to the subject's value level.
Question 5: In the sales comparison approach, 'arm's-length transaction' means:
- The buyer and seller are related family members
- Both parties act in their own best interest with no undue pressure (Correct answer)
- The property was sold at a government-mandated price
- The transaction was completed within 30 days
Correct answer: Both parties act in their own best interest with no undue pressure
An arm's-length transaction involves independent, knowledgeable parties acting in their own self-interest without undue pressure, making it suitable as a market indicator.
Question 6: An appraiser is analyzing a comparable that sold with seller-paid points that lowered the buyer's interest rate. This requires a:
- Location adjustment
- Financing concession adjustment (Correct answer)
- Physical condition adjustment
- Time adjustment
Correct answer: Financing concession adjustment
Seller-paid points are a financing concession that inflates the nominal sale price; a downward adjustment is required to reflect the cash-equivalent price.
Question 7: The 'gross adjustment percentage' on a comparable sale is calculated by:
- Summing all adjustments with their signs (+ and -)
- Adding the absolute values of all adjustments and dividing by the sale price (Correct answer)
- Multiplying the net adjustment by the number of line items
- Dividing the net adjustment by the unadjusted sale price
Correct answer: Adding the absolute values of all adjustments and dividing by the sale price
Gross adjustment is the sum of the absolute values (ignoring signs) of all adjustments divided by the unadjusted sale price, measuring total adjustment magnitude.
CGA Sales Comparison Approach 2
When an appraiser makes a paired sales analysis, the primary purpose is to: