SAEE SAEE - Market Approach Application Questions and Answers 5 — Questions and Answers
Question 1: An appraiser uses five comparables with adjusted values of $400,000, $402,000, $398,000, $450,000, and $401,000. What is the BEST course of action regarding the $450,000 comparable?
- Include it and average all five values
- Give it the least weight due to its large divergence from the cluster (Correct answer)
- Remove it entirely without explanation
- Use it as the final value estimate since it is the highest
Correct answer: Give it the least weight due to its large divergence from the cluster
The outlier should remain in the analysis but receive minimal weight, with the appraiser explaining in the report why it diverges from the cluster.
Question 2: Market conditions adjustments (time adjustments) should be based on:
- Published CPI inflation rates for the metropolitan area
- The appraiser's opinion of where the market is heading
- Paired sales or resale data that demonstrate actual price change over time (Correct answer)
- The average appreciation rate from a national housing index
Correct answer: Paired sales or resale data that demonstrate actual price change over time
Market conditions adjustments must be empirically derived from local paired sales or resale data, not national indices or subjective opinion.
Question 3: What is the primary disadvantage of using a REO (bank-owned) sale as a comparable?
- REO sales always close at above-market prices
- REO sales may reflect distressed conditions and may not represent arm's length market value (Correct answer)
- REO sales cannot be verified through public records
- REO sales are too recent to use in the analysis
Correct answer: REO sales may reflect distressed conditions and may not represent arm's length market value
Foreclosure and REO sales may be priced below market due to seller urgency, limiting their reliability as market value indicators without adjustment.
Question 4: When making a percentage adjustment for location, the appraiser should apply the percentage to:
- The unadjusted sale price of the comparable (Correct answer)
- The adjusted sale price after all prior adjustments have been applied
- The estimated value of the subject property
- The average of all comparable sale prices
Correct answer: The unadjusted sale price of the comparable
Percentage adjustments for location (and other features) are typically applied to the unadjusted sale price, before other adjustments are layered in.
Question 5: A subject property has a pool and all four comparables lack pools. Paired sales indicate a pool adds $18,000. Which statement BEST describes this situation?
- A positive $18,000 adjustment is added to each comparable's sale price (Correct answer)
- A negative $18,000 adjustment is subtracted from each comparable's sale price
- The comparables cannot be used because they lack the pool feature
- The pool value should be averaged into the final reconciled value separately
Correct answer: A positive $18,000 adjustment is added to each comparable's sale price
Since the comparables are inferior (no pool), add $18,000 to each comparable to account for the pool's market contribution.
Question 6: Which scenario BEST justifies expanding the search area for comparables beyond the immediate neighborhood?
- The appraiser wants to find higher sale prices to support the client's desired value
- There are insufficient sales within the subject's neighborhood to form a credible analysis (Correct answer)
- Comparables from other areas always require fewer adjustments
- Fannie Mae guidelines require a minimum search radius of five miles
Correct answer: There are insufficient sales within the subject's neighborhood to form a credible analysis
Expanding the geographic search is appropriate and necessary when the immediate market lacks sufficient sales to support a credible analysis, provided the outside comps are properly adjusted.
Question 7: In the sales comparison approach, 'elements of comparison' refer to:
- The mathematical formulas used to calculate adjustments
- The specific property and transaction characteristics used to identify and quantify differences between the subject and comparables (Correct answer)
- The range of adjusted values derived from all comparables
- The appraiser's final reconciled value conclusion
Correct answer: The specific property and transaction characteristics used to identify and quantify differences between the subject and comparables
Elements of comparison are the attributes — such as financing, conditions of sale, market conditions, location, and physical characteristics — used to identify differences that require adjustment.
SAEE SAEE - Market Approach Application Questions and Answers 5
An appraiser uses five comparables with adjusted values of $400,000, $402,000, $398,000, $450,000, and $401,000.
What is the BEST course of action regarding the $450,000 comparable?