Sales Comparison Approach Flashcards

What is the primary principle underlying the sales comparison approach to value?

Answer: The principle of substitution

The sales comparison approach is based on the principle of substitution, which holds that a prudent buyer will pay no more for a property than the cost of acquiring an equally desirable substitute.

When making adjustments in the sales comparison approach, adjustments are made to which property?

Answer: The comparable sale

Adjustments are always made to the comparable sale, not the subject property, to account for differences between the two.

What does a negative (downward) adjustment to a comparable sale indicate?

Answer: The comparable is superior to the subject in that feature

A negative adjustment is applied when the comparable is superior to the subject in a given feature, reducing the comparable's price to reflect what it would have sold for without that superior feature.

What is a 'paired sales analysis' used for in the sales comparison approach?

Answer: To isolate and quantify the value contribution of a single property feature

Paired sales analysis uses two sales that are identical except for one feature to isolate and quantify the market value contribution of that specific feature.

What does a 'time adjustment' (market conditions adjustment) account for in the sales comparison approach?

Answer: Changes in market conditions between the comparable's sale date and the effective date of appraisal

A time adjustment accounts for changes in market conditions between when the comparable sold and the effective appraisal date, reflecting appreciation or depreciation in the market.

In the sales comparison approach, which of the following is considered a 'transactional adjustment'?

Answer: Adjusting for seller concessions or financing terms

Transactional adjustments address non-market conditions of the sale itself, such as seller concessions, atypical financing, or non-arm's-length conditions.

Which criterion is MOST important when selecting comparable sales for the sales comparison approach?

Answer: The comparable must be competitive with the subject in the eyes of typical buyers

The most important criterion is that the comparable competes with the subject property for the same pool of buyers, reflecting market competition rather than rigid geographic or time limits.