CGA Sales Comparison Approach

Question 1

What is the primary goal of the sales comparison approach in real estate appraisal?

Accepted Answer

To estimate the property's value based on comparable sales.

Answer

The sales comparison approach, also known as the market data approach, estimates a property's value by analyzing recent sales of similar properties (comparables) in the same or similar market. The appraiser makes adjustments to the sale prices of these comparables to account for differences between them and the subject property. This process ultimately derives an indicated value for the subject property based on market evidence.

Question 2

Which of the following is considered a comparable sale in the sales comparison approach?

Accepted Answer

A property with a similar location, size, and condition to the subject property.

Answer

For a property to be considered a comparable sale, it must share key characteristics with the subject property to ensure a meaningful comparison. These characteristics typically include proximity in location, similar physical attributes (size, age, condition, quality), and similar utility or use type. The more similar the comparable is to the subject, the fewer and smaller the adjustments needed, leading to a more reliable valuation.

Question 3

What is the role of adjustments in the sales comparison approach?

Accepted Answer

To account for variations in location, size, and condition.

Answer

In the sales comparison approach, adjustments are made to the sale prices of comparable properties to account for differences between them and the subject property. These differences can include factors like location, physical characteristics (size, age, condition, quality), features, and terms of sale. The goal is to make the comparables as similar as possible to the subject property, allowing for a more accurate value indication.

Question 4

What factors should be considered when selecting comparable properties in the sales comparison approach?

Accepted Answer

Location, size, condition, and recent sale prices of similar properties.

Answer

When selecting comparable properties, an appraiser must consider several critical factors to ensure the comparison is valid and reliable. These include the property's location (proximity to the subject), physical characteristics (size, age, condition, quality, features), and the recency of the sale. The goal is to find properties that are as similar as possible to the subject and have sold recently in an arm's-length transaction.

Question 5

What is a major limitation of the sales comparison approach?

Accepted Answer

It is ineffective when there are few comparable sales.

Answer

The sales comparison approach relies heavily on the availability of recent, relevant, and reliable sales data for similar properties. If there are very few comparable sales in the market, or if the available sales are significantly different from the subject property, it becomes difficult to make accurate adjustments and derive a credible value estimate. This limitation makes the approach less effective in unique or illiquid markets.

(CGA) Certified General Appraiser Practice Test

(CGA) Certified General Appraiser Practice Test

CGA Sales Comparison Approach