RPA Sales Comparison Approach 1 — Questions and Answers
Question 1: What is the primary principle underlying the sales comparison approach to value?
- The principle of substitution (Correct answer)
- The principle of anticipation
- The principle of contribution
- The principle of conformity
Correct 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.
Question 2: When making adjustments in the sales comparison approach, adjustments are made to which property?
- The subject property
- The comparable sale (Correct answer)
- Both the subject and comparable
- The property with the lower value
Correct answer: The comparable sale
Adjustments are always made to the comparable sale, not the subject property, to account for differences between the two.
Question 3: What does a negative (downward) adjustment to a comparable sale indicate?
- The comparable is inferior to the subject in that feature
- The comparable is superior to the subject in that feature (Correct answer)
- The comparable sold for less than market value
- The market has declined since the comparable sold
Correct 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.
Question 4: What is a 'paired sales analysis' used for in the sales comparison approach?
- To estimate the value of two properties simultaneously
- To isolate and quantify the value contribution of a single property feature (Correct answer)
- To verify that two sales occurred at arm's length
- To compare two appraisers' value conclusions
Correct 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.
Question 5: What does a 'time adjustment' (market conditions adjustment) account for in the sales comparison approach?
- The age difference between the subject and comparable
- Changes in market conditions between the comparable's sale date and the effective date of appraisal (Correct answer)
- The time it took to sell the comparable property
- Seasonal fluctuations in rental income
Correct 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.
Question 6: In the sales comparison approach, which of the following is considered a 'transactional adjustment'?
- Adjusting for gross living area differences
- Adjusting for the number of bedrooms
- Adjusting for seller concessions or financing terms (Correct answer)
- Adjusting for lot size differences
Correct 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.
Question 7: Which criterion is MOST important when selecting comparable sales for the sales comparison approach?
- The comparable must have sold within the past six months
- The comparable must be in the same subdivision as the subject
- The comparable must be competitive with the subject in the eyes of typical buyers (Correct answer)
- The comparable must have the same square footage as the subject
Correct 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.
RPA Sales Comparison Approach 1
What is the primary principle underlying the sales comparison approach to value?