RAA Sales Comparison Approach 5 — Questions and Answers
Question 1: An appraiser is working in a rural area with very few sales. Which of the following is the most appropriate action?
- Abandon the sales comparison approach and rely solely on the cost approach
- Expand the search area to competing markets while explaining the geographic expansion in the report (Correct answer)
- Use listings instead of sales as primary comparables without adjustment
- Select only the three most recent sales regardless of similarity
Correct answer: Expand the search area to competing markets while explaining the geographic expansion in the report
When local sales are scarce, appraisers may expand geographically to competing markets, provided the report explains the rationale and the expanded area is truly competitive.
Question 2: A property sold six months ago for $400,000 with a seller buydown of the buyer's mortgage rate costing $8,000. What cash equivalent sale price should the appraiser use?
- $392,000 (Correct answer)
- $400,000
- $408,000
- $380,000
Correct answer: $392,000
The $8,000 rate buydown is a financing concession that inflates the sale price; subtracting it yields a cash equivalent of $392,000.
Question 3: What does 'market conditions' refer to as an element of comparison in the sales comparison approach?
- The physical condition of the comparable property at the time of sale
- Changes in real estate prices and buyer/seller behaviors between the comparable sale date and effective appraisal date (Correct answer)
- The condition of the local economy reported in the neighborhood section
- The marketing time required to sell the comparable property
Correct answer: Changes in real estate prices and buyer/seller behaviors between the comparable sale date and effective appraisal date
Market conditions as an element of comparison captures price changes over time due to shifts in supply, demand, interest rates, and buyer sentiment.
Question 4: Which of the following is the correct sequence for applying adjustments in the sales comparison approach?
- Physical characteristics, then location, then market conditions, then financing
- Financing concessions and conditions of sale first, then market conditions, then location, then physical characteristics (Correct answer)
- Location first, then financing, then physical characteristics, then market conditions
- All adjustments are applied simultaneously with no required sequence
Correct answer: Financing concessions and conditions of sale first, then market conditions, then location, then physical characteristics
Proper sequencing requires transactional adjustments (financing, conditions of sale) first to establish a cash equivalent arm's length price, then market conditions, then property-specific adjustments.
Question 5: An appraiser is analyzing a sale where the buyer and seller are parent and child. This sale is most likely:
- Arm's length because relatives can negotiate freely
- Not arm's length because the family relationship may influence the price (Correct answer)
- Acceptable as long as it was recorded with the county
- Valid if the sale price is above the assessed value
Correct answer: Not arm's length because the family relationship may influence the price
Sales between related parties typically involve motivations other than pure market forces, making them unreliable as indicators of market value.
Question 6: An appraiser's adjusted comparable sale prices are $312,000, $318,000, and $308,000. The most reliable comparable had the fewest adjustments and indicated $312,000. The appraiser should conclude a value of approximately:
- $312,667 (simple average)
- $318,000 (highest adjusted price)
- $312,000 (most weight to the most reliable comparable) (Correct answer)
- $308,000 (most conservative estimate)
Correct answer: $312,000 (most weight to the most reliable comparable)
Reconciliation gives greatest weight to the most reliable comparable—typically the one requiring the fewest and smallest adjustments—rather than mechanically averaging all values.
Question 7: When is it appropriate to use a listing (active or pending sale) as a comparable in the sales comparison approach?
- Never; only closed sales are acceptable as comparables
- When the listing price is lower than recent closed sales, to support a lower value
- As supplemental support when closed sales are scarce, treating listing prices as a ceiling on value (Correct answer)
- Only if the listing has been on the market for fewer than 30 days
Correct answer: As supplemental support when closed sales are scarce, treating listing prices as a ceiling on value
Listings can supplement closed sales as comparables, particularly in thin markets, but they represent the maximum a seller would accept and serve as a ceiling, not a floor, on value.
RAA Sales Comparison Approach 5
An appraiser is working in a rural area with very few sales.
Which of the following is the most appropriate action?