Comparable property selection and making dollar and percentage adjustments in the sales comparison approach to value.
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- What is the sales comparison approach?
- A valuation method that estimates property value using prices of comparable recently-sold properties.
- How recent should a comparable sale be to remain valid?
- Generally 6-12 months; older sales require adjustment for market conditions.
- What characteristics define a comparable property?
- Similar type, location, size, age, condition, and sold recently under arm's-length terms.
- Why must a comparable sale be arm's-length?
- Arm's-length sales reflect true market conditions; related-party or forced sales distort prices.
- What is a dollar adjustment?
- A fixed dollar amount added or subtracted to a comparable's sale price to account for a difference.
- What is a percentage adjustment?
- An adjustment applied as a percentage of the comparable's sale price, used when feature value scales with price.
- How many comparable sales should be included in an appraisal?
- Typically 3-5; at least 3 to support market value, more in complex markets.
- What is a market conditions adjustment?
- An adjustment for price changes due to shifts in supply, demand, or economic factors over time.
- When making a time adjustment, what assumption underlies it?
- Property values change at a measurable rate over time, reflected in market price trends.
- How is a location adjustment determined?
- By analyzing differences in desirability, proximity to amenities, neighborhood characteristics, and market demand.
- When should a dollar adjustment be used for physical differences?
- When the feature is measurable and market data supports a specific cost (e.g., per square foot).
- How do you adjust for a feature present in the subject but absent in a comparable?
- Add a positive adjustment to the comparable's price to reflect the subject's advantage.
- What is the typical cumulative adjustment limit?
- Cumulative adjustments should not exceed 15-20% of the comparable's sale price.
- What should be done if cumulative adjustments exceed reasonable limits?
- Consider using a different comparable or weight it lower in the final value estimate.
- Does adjustment sequencing affect the final adjusted value?
- No; the order of applying adjustments should not change the final result.
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