SAEE Market Approach Application 2 — Questions and Answers
Question 1: When applying the market approach, what is the primary basis for estimating a subject property's value?
- Recent sale prices of comparable properties (Correct answer)
- The owner's original purchase price
- The cost to rebuild the structure new
- The property's annual tax assessment
Correct answer: Recent sale prices of comparable properties
The market approach derives value from the recent sale prices of similar, competing properties.
Question 2: An adjustment to a comparable sale is made because the comparable has a feature the subject lacks. The adjustment should be:
- Subtracted from the comparable's sale price (Correct answer)
- Added to the comparable's sale price
- Added to the subject's value
- Ignored as immaterial
Correct answer: Subtracted from the comparable's sale price
If the comparable is superior, its price is adjusted downward to reflect the subject.
Question 3: Which sale would generally NOT qualify as an arm's-length transaction for use as a comparable?
- A sale between two family members at a discount (Correct answer)
- A sale between unrelated buyer and seller
- A sale exposed openly on the market
- A sale at the prevailing market price
Correct answer: A sale between two family members at a discount
Sales between related parties are not arm's-length and may not reflect true market value.
Question 4: The principle of substitution underlies the market approach because it holds that:
- A buyer will pay no more than the cost of an equally desirable substitute (Correct answer)
- Value always equals replacement cost
- Older properties are worth less than new ones
- Location has no effect on value
Correct answer: A buyer will pay no more than the cost of an equally desirable substitute
Substitution states a buyer pays no more than an equally desirable alternative would cost.
Question 5: When selecting comparable sales, which factor is most important to match closely with the subject?
- Property type, location, and date of sale (Correct answer)
- The listing agent's brokerage
- The lender used by the buyer
- The color of the exterior paint
Correct answer: Property type, location, and date of sale
Comparables should be similar in type, location, and recency to be reliable.
Question 6: A comparable sold six months ago in a rising market. To account for time, the appraiser applies a:
- Market conditions (time) adjustment (Correct answer)
- Physical depreciation adjustment
- Functional obsolescence adjustment
- Capitalization rate
Correct answer: Market conditions (time) adjustment
A market conditions adjustment corrects for price changes between the sale date and the effective date.
Question 7: After adjusting several comparables, the appraiser arrives at differing indicated values. The final step is to:
- Reconcile the indications into a single value opinion (Correct answer)
- Average all values automatically
- Choose only the highest value
- Discard all but the lowest comparable
Correct answer: Reconcile the indications into a single value opinion
Reconciliation weighs the reliability of each comparable to form a final value opinion.
SAEE Market Approach Application 2
When applying the market approach, what is the primary basis for estimating a subject property's value?