SAEE - Market Approach Application Questions and Answers Flashcards

When applying the market approach to value a commercial property, which factor is MOST critical for selecting comparable sales?

Answer: Similar geographic location and property type

Comparable sales should share similar location and property type to ensure meaningful value comparisons.

In the market approach, what is the primary purpose of making adjustments to comparable sale prices?

Answer: To account for differences between the comparable and the subject property

Adjustments reconcile differences in features, conditions, and terms between comparables and the subject property.

A comparable property sold for $500,000 but had a swimming pool valued at $25,000 that the subject property lacks. What adjustment should be made?

Answer: Subtract $25,000 from the comparable's price

When a comparable has a feature the subject lacks, you subtract that feature's value from the comparable's sale price.

Which condition of sale would MOST likely require an adjustment when using the market approach?

Answer: A foreclosure sale under duress

Foreclosure sales occur under duress and typically sell below market value, requiring an upward adjustment.

What does the principle of substitution state in the context of the market approach?

Answer: A buyer will pay no more than the cost to acquire an equally desirable substitute property

The principle of substitution holds that a rational buyer will not pay more for a property than the cost of obtaining an equally desirable alternative.

When performing a market approach analysis, which time adjustment accounts for changes in market conditions between the comparable sale date and the effective appraisal date?

Answer: Market conditions adjustment

A market conditions adjustment accounts for appreciation or depreciation in property values between the sale date and the appraisal date.