MULTIPLE-CHOICE QUESTIONS WITH ANSWERS RELATED TO MARKET APPROACH- SALES COMPARISON METHOD
Which of the following is NOT a characteristic of the Sales Comparison Method?
A) It relies on market data from recent transactions
B) It is particularly useful for unique properties with limited comparables
C) It requires adjustments to be made for differences between the subject property and comparables
D) It is primarily used for income-producing properties
Answer: D) It is primarily used for income-producing properties
What is the primary source of data used in the Sales Comparison Method?
A) Property tax assessments
B) Current replacement cost
C) Recent sales of comparable properties
D) Historical rental income
Answer: C) Recent sales of comparable properties
Which of the following adjustments is typically NOT made in the Sales Comparison Method?
A) Location
B) Size
C) Condition
D) Age
Answer: D) Age
When comparing properties using the Sales Comparison Method, which factor is considered the most important?
A) Location
B) Size
C) Condition
D) Age
Answer: A) Location
In the Sales Comparison Method, how are adjustments typically made for differences between the subject property and comparables?
A) By adding the value of the subject property to the comparable
B) By subtracting the value of the comparable from the subject property
C) By adjusting the comparable to match the subject property
D) By using a predetermined multiplier
Answer: C) By adjusting the comparable to match the subject property
Which of the following statements is true regarding the Sales Comparison Method?
A) It is only applicable to residential properties
B) It is based on future income potential
C) It is subjective and may involve personal judgment
D) It is not influenced by market trends
Answer: C) It is subjective and may involve personal judgment
What is the main limitation of the Sales Comparison Method?
A) It relies too heavily on market trends
B) It is time-consuming and costly
C) It requires a large dataset of comparable sales
D) It may not accurately account for unique property characteristics
Answer: D) It may not accurately account for unique property characteristics
Which of the following factors is NOT typically considered when selecting comparable properties for the Sales Comparison Method?
A) Proximity
B) Financing terms
C) Time of sale
D) Property type
Answer: B) Financing terms
In the Sales Comparison Method, what does the term “arm’s length transaction” refer to?
A) A sale between family members
B) A sale between unrelated parties with no duress
C) A sale involving seller financing
D) A sale conducted through a real estate auction
Answer: B) A sale between unrelated parties with no duress
Which of the following statements about adjustments in the Sales Comparison Method is true?
A) Adjustments are always based on the seller’s opinion
B) Adjustments are typically made for physical and economic differences
C) Adjustments are only made for properties within the same neighborhood
D) Adjustments are standardized and do not vary between properties
Answer: B) Adjustments are typically made for physical and economic differences
What role does the appraiser play in the Sales Comparison Method?
A) Identifying the highest comparable sale
B) Selecting comparable properties and making adjustments
C) Setting the listing price for the subject property
D) Negotiating the terms of sale
Answer: B) Selecting comparable properties and making adjustments
Which of the following factors is LEAST likely to influence the value of a property in the Sales Comparison Method?
A) Recent renovations
B) Proximity to schools
C) Historical significance
D) Availability of public transportation
Answer: C) Historical significance
What is the primary advantage of using the Sales Comparison Method?
A) It provides an objective valuation of the subject property
B) It is less reliant on market conditions compared to other methods
C) It is based on actual market transactions
D) It requires minimal adjustments to comparables
Answer: C) It is based on actual market transactions
In the Sales Comparison Method, which of the following factors would typically result in a positive adjustment to a comparable property?
A) Larger lot size
B) Higher property taxes
C) Older roof
D) Smaller square footage
Answer: A) Larger lot size
When using the Sales Comparison Method, why is it important to use recent comparable sales data?
A) To minimize the need for adjustments
B) To reflect current market conditions
C) To accommodate fluctuations in interest rates
D) To account for changes in zoning regulations
Answer: B) To reflect current market conditions
Which of the following properties would be considered the best comparable for a subject property in the Sales Comparison Method?
A) A property sold three years ago in a different neighborhood
B) A property sold six months ago in the same neighborhood
C) A property currently listed for sale at a much higher price
D) A property inherited by the seller
Answer: B) A property sold six months ago in the same neighborhood
In the Sales Comparison Method, what does the term “comparables” refer to?
A) Properties that are identical to the subject property
B) Properties that are similar to the subject property and used for valuation
C) Properties that are currently listed for sale
D) Properties that are being rented out
Answer: B) Properties that are similar to the subject property and used for valuation
Which of the following statements about adjustments in the Sales Comparison Method is false?
A) Adjustments are typically made for differences in financing terms
B) Adjustments are subjective and require judgment by the appraiser
C) Adjustments are based on empirical data and do not vary
D) Adjustments may vary depending on market conditions
Answer: C) Adjustments are based on empirical data and do not vary
What does the term “comparative market analysis (CMA)” refer to in the context of the Sales Comparison Method?
A) A report prepared by the seller to justify a higher listing price
B) An analysis conducted by the buyer to negotiate a lower purchase price
C) An analysis performed by real estate agents to estimate a property’s value
D) A method used by investors to compare the performance of different markets
Answer: C) An analysis performed by real estate agents to estimate a property’s value
In the Sales Comparison Method, which of the following adjustments is typically made first?
A) Age
B) Location
C) Size
D) Condition
Answer: B) Location
What is the purpose of conducting a reconciliation of value in the Sales Comparison Method?
A) To determine the final appraised value of the subject property
B) To identify discrepancies between the subject property and comparables
C) To prioritize the most recent comparable sales data
D) To estimate the cost of renovations needed for the subject property
Answer: A) To determine the final appraised value of the subject property
Which of the following factors is typically considered in the Sales Comparison Method’s adjustments for location?
A) Roof condition
B) Proximity to amenities
C) Number of bedrooms
D) Flooring material
Answer: B) Proximity to amenities
What is the term used to describe the process of estimating the value of a subject property by comparing it to similar properties that have recently sold?
A) Comparative analysis
B) Market valuation
C) Sales correlation
D) Sales comparison approach
Answer: D) Sales comparison approach
Which of the following scenarios would NOT require adjustments in the Sales Comparison Method?
A) Comparing properties in different neighborhoods
B) Comparing properties with different lot sizes
C) Comparing properties with different roof conditions
D) Comparing properties with different financing terms
Answer: D) Comparing properties with different financing terms
What is the term used to describe the adjustment made to a comparable property’s sale price to account for a feature it lacks compared to the subject property?
A) Positive adjustment
B) Negative adjustment
C) Regression analysis
D) Correlation coefficient
Answer: A) Positive adjustment
In the Sales Comparison Method, which of the following factors is typically considered in the adjustment for size?
A) Proximity to schools
B) Roof condition
C) Square footage
D) Flooring material
Answer: C) Square footage
Which of the following statements about the Sales Comparison Method is true?
A) It is primarily used for new construction properties
B) It provides an objective estimate of a property’s value
C) It relies solely on the seller’s asking price
D) It is based on recent market data
Answer: D) It is based on recent market data
What is the term used to describe the process of selecting and adjusting comparable properties in the Sales Comparison Method?
A) Market segmentation
B) Comparative analysis
C) Property valuation
D) Reconciliation
Answer: B) Comparative analysis
Which of the following factors is NOT typically considered in the Sales Comparison Method’s adjustments for condition?
A) Age of the property
B) Structural integrity
C) Presence of mold
D) Proximity to public transportation
Answer: D) Proximity to public transportation
What is the primary challenge associated with using the Sales Comparison Method for unique or specialized properties?
A) Limited availability of comparable data
B) Inability to make adjustments for differences
C) Lack of interest from potential buyers
D) Fluctuating interest rates
Answer: A) Limited availability of comparable data
Which of the following statements about adjustments in the Sales Comparison Method is false?
A) Adjustments are based on objective criteria
B) Adjustments may vary depending on market conditions
C) Adjustments are necessary to make comparables more similar to the subject property
D) Adjustments are made to the subject property instead of comparables
Answer: A) Adjustments are based on objective criteria
In the Sales Comparison Method, what does the term “matched pairs analysis” refer to?
A) A method for identifying similar properties in the market
B) A statistical technique for determining adjustments
C) A process for reconciling differences between comparables
D) A strategy for pricing properties in a competitive market
Answer: B) A statistical technique for determining adjustments
Which of the following adjustments is typically NOT made in the Sales Comparison Method?
A) Age
B) Size
C) Financing terms
D) Condition
Answer: C) Financing terms
In the Sales Comparison Method, which of the following factors is typically considered in the adjustment for age?
A) Number of bedrooms
B) Proximity to amenities
C) Structural integrity
D) Distance from the city center
Answer: C) Structural integrity
What is the term used to describe the adjustment made to a comparable property’s sale price to account for a feature it has in excess compared to the subject property?
A) Positive adjustment
B) Negative adjustment
C) Regression analysis
D) Correlation coefficient
Answer: B) Negative adjustment
Which of the following statements about the Sales Comparison Method is false?
A) It is widely used for residential properties
B) It is less reliable for unique or specialized properties
C) It requires adjustments to be made to comparables
D) It is based on historical rental income
Answer: D) It is based on historical rental income
What is the term used to describe the process of reconciling differences between the subject property and comparables in the Sales Comparison Method?
A) Market analysis
B) Adjustment reconciliation
C) Comparative analysis
D) Reconciliation of value
Answer: D) Reconciliation of value
Which of the following factors is typically considered in the Sales Comparison Method’s adjustments for size?
A) Roof condition
B) Proximity to amenities
C) Square footage
D) Flooring material
Answer: C) Square footage
In the Sales Comparison Method, what does the term “external obsolescence” refer to?
A) Physical deterioration of the subject property
B) Market conditions affecting the subject property
C) Economic factors outside the subject property’s control
D) Changes in zoning regulations
Answer: C) Economic factors outside the subject property’s control
Which of the following statements about the Sales Comparison Method is true?
A) It is the only method used to determine a property’s value
B) It relies solely on the seller’s asking price
C) It is based on objective criteria and does not involve judgment
D) It is particularly useful for new construction properties
Answer: D) It is particularly useful for new construction properties
What is the term used to describe the process of making adjustments to comparables in the Sales Comparison Method?
A) Comparative analysis
B) Adjustment reconciliation
C) Market segmentation
D) Regression analysis
Answer: B) Adjustment reconciliation
Which of the following scenarios would require the largest adjustment in the Sales Comparison Method?
A) Comparing properties with different roof conditions
B) Comparing properties in different neighborhoods
C) Comparing properties with different lot sizes
D) Comparing properties with different numbers of bedrooms
Answer: B) Comparing properties in different neighborhoods
In the Sales Comparison Method, what is the term used to describe the process of adjusting comparable properties to make them more similar to the subject property?
A) Normalization
B) Reconciliation
C) Stratification
D) Equalization
Answer: A) Normalization
Which of the following factors is typically considered in the Sales Comparison Method’s adjustments for condition?
A) Age of the property
B) Proximity to amenities
C) Presence of mold
D) Flooring material
Answer: C) Presence of mold
What is the term used to describe the process of reconciling differences between the subject property and comparables by assigning weights to different factors?
A) Regression analysis
B) Normalization
C) Stratification
D) Weighting
Answer: D) Weighting
In the Sales Comparison Method, which of the following factors is typically considered in the adjustment for condition?
A) Proximity to schools
B) Structural integrity
C) Roof condition
D) Flooring material
Answer: B) Structural integrity
Which of the following statements about adjustments in the Sales Comparison Method is false?
A) Adjustments are made to comparables to make them more similar to the subject property
B) Adjustments are based on objective criteria and do not vary
C) Adjustments may vary depending on market conditions
D) Adjustments are necessary to account for differences between properties
Answer: B) Adjustments are based on objective criteria and do not vary
What is the term used to describe the process of comparing recent sales of similar properties to estimate a property’s value in the Sales Comparison Method?
A) Regression analysis
B) Market segmentation
C) Comparative analysis
D) Normalization
Answer: C) Comparative analysis
Which of the following factors is typically considered in the Sales Comparison Method’s adjustments for location?
A) Roof condition
B) Proximity to amenities
C) Square footage
D) Flooring material
Answer: B) Proximity to amenities
In the Sales Comparison Method, what is the term used to describe the process of reconciling differences between the subject property and comparables by making qualitative adjustments?
A) Quantitative analysis
B) Normalization
C) Stratification
D) Qualitative analysis
Answer: D) Qualitative analysis
