SAEE SAEE - Market Approach Application Questions and Answers 4 — Questions and Answers
Question 1: An appraiser calculates a gross adjustment of 28% and a net adjustment of 5% on a comparable. What does this indicate?
- The comparable is an excellent indicator of value with minimal differences
- Large positive and negative adjustments are offsetting each other, reducing reliability (Correct answer)
- The comparable is not usable because net adjustments exceed 10%
- The appraiser should increase the weight given to this comparable
Correct answer: Large positive and negative adjustments are offsetting each other, reducing reliability
High gross adjustments relative to net adjustments signal that large positive and negative items are canceling out, which reduces the reliability of the comparable.
Question 2: The Gross Rent Multiplier (GRM) is calculated as:
- Net Operating Income ÷ Sale Price
- Sale Price ÷ Monthly Gross Rent (Correct answer)
- Monthly Gross Rent ÷ Sale Price
- Sale Price ÷ Annual Net Income
Correct answer: Sale Price ÷ Monthly Gross Rent
GRM = Sale Price ÷ Monthly Gross Rent; it is a quick market-derived ratio used as a check in the sales comparison approach for residential income properties.
Question 3: When selecting comparables for a single-family residence, which factor has the HIGHEST priority?
- Proximity in time of sale
- Similarity of location and neighborhood (Correct answer)
- Identical square footage
- Same number of bedrooms
Correct answer: Similarity of location and neighborhood
Location is paramount in real estate value; a geographically similar comp in the same neighborhood is more reliable than a time-similar comp in a different area.
Question 4: A comparable sold for $350,000 and required $15,000 in deferred maintenance that a typical buyer would cure. The subject is in average condition. The appropriate adjustment to the comparable is:
- +$15,000 (Correct answer)
- -$15,000
- +$7,500
- No adjustment because condition is subjective
Correct answer: +$15,000
The comparable is inferior due to deferred maintenance, so a positive $15,000 adjustment brings it up to the subject's average condition.
Question 5: An appraiser is valuing a lakefront property. Which type of adjustment is MOST appropriate for the lake frontage feature?
- A dollar adjustment derived from paired sales near the subject lake (Correct answer)
- A percentage adjustment based on the national average for waterfront properties
- A fixed $10,000 adjustment used for all waterfront properties in the region
- No adjustment; lake frontage is already reflected in location adjustments
Correct answer: A dollar adjustment derived from paired sales near the subject lake
Paired sales from the same lake most accurately capture local market reaction to that specific water frontage attribute.
Question 6: Which of the following best describes an 'arm's length transaction' in the context of the sales comparison approach?
- A sale where both buyer and seller are related by family
- A sale between knowledgeable, unrelated parties acting in their own best interests without undue pressure (Correct answer)
- A sale completed within 30 days of listing
- A sale where seller financing was provided at below-market rates
Correct answer: A sale between knowledgeable, unrelated parties acting in their own best interests without undue pressure
Arm's length transactions reflect open-market conditions and are suitable for use as comparables; non-arm's length sales require adjustment or exclusion.
Question 7: A subject property has 2,000 sq ft. Comparable A has 1,800 sq ft and sold for $360,000. If the market indicates a value of $50/sq ft for size differences, what is the adjusted sale price of Comparable A?
- $350,000
- $370,000 (Correct answer)
- $360,000
- $380,000
Correct answer: $370,000
Comparable A is inferior by 200 sq ft; add 200 × $50 = $10,000, so $360,000 + $10,000 = $370,000.
SAEE SAEE - Market Approach Application Questions and Answers 4
An appraiser calculates a gross adjustment of 28% and a net adjustment of 5% on a comparable.
What does this indicate?