SAEE SAEE - Market Approach Application Questions and Answers 2 — Questions and Answers
Question 1: When applying the market approach to value a commercial property, which factor is MOST critical for selecting comparable sales?
- Similar geographic location and property type (Correct answer)
- Identical square footage
- Same year of construction
- Matching exterior color scheme
Correct answer: Similar geographic location and property type
Comparable sales should share similar location and property type to ensure meaningful value comparisons.
Question 2: In the market approach, what is the primary purpose of making adjustments to comparable sale prices?
- To inflate the subject property's value
- To account for differences between the comparable and the subject property (Correct answer)
- To reduce the number of comparables needed
- To satisfy lender requirements only
Correct 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.
Question 3: 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?
- Add $25,000 to the comparable's price
- Subtract $25,000 from the comparable's price (Correct answer)
- Add $25,000 to the subject property's value
- No adjustment is necessary
Correct 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.
Question 4: Which condition of sale would MOST likely require an adjustment when using the market approach?
- An arm's length transaction between unrelated parties
- A foreclosure sale under duress (Correct answer)
- A sale listed on the open market for 90 days
- A transaction with standard financing terms
Correct answer: A foreclosure sale under duress
Foreclosure sales occur under duress and typically sell below market value, requiring an upward adjustment.
Question 5: What does the principle of substitution state in the context of the market approach?
- A buyer will pay no more than the cost to acquire an equally desirable substitute property (Correct answer)
- Property values always increase over time
- The highest-priced comparable sets the subject property's value
- Older properties are always worth less than newer ones
Correct 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.
Question 6: 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?
- Location adjustment
- Condition adjustment
- Market conditions adjustment (Correct answer)
- Physical characteristics adjustment
Correct answer: Market conditions adjustment
A market conditions adjustment accounts for appreciation or depreciation in property values between the sale date and the appraisal date.
SAEE SAEE - Market Approach Application Questions and Answers 2
When applying the market approach to value a commercial property, which factor is MOST critical for selecting comparable sales?