RAA Sales Comparison Approach 4 — Questions and Answers
Question 1: When a seller contributes $10,000 toward the buyer's closing costs on a $250,000 sale, how should an appraiser typically treat this transaction?
- Use the contract price of $250,000 without adjustment
- Adjust the sale price downward by $10,000 to reflect the cash equivalent price of $240,000 (Correct answer)
- Reject the sale entirely since it is not arm's length
- Adjust the sale price upward by $10,000
Correct answer: Adjust the sale price downward by $10,000 to reflect the cash equivalent price of $240,000
Seller-paid concessions inflate the nominal sale price; the appraiser adjusts the comparable downward by the concession amount to arrive at the cash equivalent price.
Question 2: What is the primary reason an appraiser verifies comparable sales with buyers, sellers, or their agents?
- To obtain a copy of the seller's disclosure statement
- To confirm the sale price, terms, and whether the transaction was arm's length (Correct answer)
- To determine how long the property was occupied after closing
- To verify the property's zoning classification
Correct answer: To confirm the sale price, terms, and whether the transaction was arm's length
Verification confirms the accuracy of recorded sale data and reveals non-market conditions such as special financing, foreclosure, or family sales that would affect reliability.
Question 3: An appraiser finds that the subject property has a view of the ocean, but none of the comparable sales have an ocean view. How should the appraiser address this?
- Ignore the view because it cannot be quantified
- Add a percentage premium estimated from the appraiser's experience without support
- Extract a view premium from paired sales analysis or matched sales elsewhere and apply it as an adjustment (Correct answer)
- Use the cost approach instead
Correct answer: Extract a view premium from paired sales analysis or matched sales elsewhere and apply it as an adjustment
The appraiser should support the view adjustment through paired sales analysis or other market evidence to extract a credible dollar or percentage premium.
Question 4: In the sales comparison approach, 'reconciliation' refers to:
- Averaging all adjusted comparable sale prices
- Selecting the highest adjusted comparable to protect the lender
- Analyzing the adjusted values of all comparables and weighting them to reach a single value conclusion (Correct answer)
- Eliminating all comparables with net adjustments exceeding 10%
Correct answer: Analyzing the adjusted values of all comparables and weighting them to reach a single value conclusion
Reconciliation is the analytical process of weighing the adjusted values of comparables based on their relative similarity and reliability to arrive at a single value opinion.
Question 5: A comparable sale closed three months ago at $310,000, but the appraiser's analysis shows the market has appreciated 2% since then. What is the time-adjusted sale price?
- $303,800
- $306,200
- $316,200 (Correct answer)
- $312,200
Correct answer: $316,200
A 2% appreciation on $310,000 equals $6,200, so the time-adjusted price is $310,000 + $6,200 = $316,200.
Question 6: Which of the following best describes the concept of 'substitution' as it applies to the sales comparison approach?
- An appraiser substitutes one comparable for another if the first is disqualified
- A buyer will not pay more for a property than the cost of an equally desirable substitute property (Correct answer)
- The subject property can be substituted with a comparable for the final value conclusion
- Depreciation is substituted for the income approach when market data is limited
Correct answer: A buyer will not pay more for a property than the cost of an equally desirable substitute property
The principle of substitution underpins the sales comparison approach: a rational buyer would pay no more for a property than the price of a comparable substitute available in the market.
Question 7: When an appraiser applies a dollar adjustment versus a percentage adjustment for a feature, which scenario typically calls for a percentage adjustment?
- Adding a bathroom to a property
- Adjusting for a detached garage
- Adjusting for location differences where the feature's value scales with property price (Correct answer)
- Adjusting for a fireplace
Correct answer: Adjusting for location differences where the feature's value scales with property price
Percentage adjustments are appropriate when the market indicates the value contribution of a feature scales proportionally with the overall price of the property, such as location premiums.
RAA Sales Comparison Approach 4
When a seller contributes $10,000 toward the buyer's closing costs on a $250,000 sale, how should an appraiser typically treat this transaction?