How should an appraiser choose the unit of comparison in the sales comparison approach?
Correct Answer
A) Use the unit that reflects how actual buyers and sellers in the market price the property
Any unit of comparison should reflect market behavior, that is, the thinking of actual buyers and sellers, and help reveal a pattern of prices. No single unit fits all property types, and choosing a unit to raise value or reduce adjustments is not market based.
Why This Is the Correct Answer
Option A is correct because a unit of comparison should reflect market behavior, meaning the thinking of actual buyers and sellers. A unit that matches how the market prices the property helps reveal a consistent pattern of prices.
Why the Other Options Are Wrong
Option B: Use the unit that produces the highest indicated value
Option B, using the unit that produces the highest indicated value, chooses a method based on the result rather than market evidence. That introduces bias and is not a market-based selection.
Option C: Use price per square foot, since it is the standard unit for residential property
Option C, using price per square foot as the standard residential unit, assumes one unit fits all properties. No single unit fits all property types or markets; the choice depends on how that market prices property.
Option D: Use the unit that requires the fewest adjustments in the grid
Option D, using the unit that requires the fewest adjustments, picks a unit for convenience rather than because it reflects market behavior. Fewer adjustments do not make a unit more relevant to buyers and sellers.
Think like the buyer
Choose the unit that local buyers and sellers use when they talk about price.
How to use: Use this when picking or evaluating a unit of comparison.
Exam Tip
Answers that choose a unit for a convenient or favorable result rather than market behavior are not market based.
Common Mistakes to Avoid
- -Choosing a unit because it produces a higher value
- -Assuming price per square foot fits every property
- -Choosing a unit only to reduce the number of adjustments
Concept Deep Dive
Analysis
This question tests how to select a unit of comparison. The unit should reflect how buyers and sellers in that market actually think about price, so that it reveals a meaningful pattern among sales.
Background Knowledge
Common units of comparison include price per square foot, price per unit, price per room and price per acre. The appropriate unit depends on the property type and on how participants in that market price property. Size-related units can reduce the need for explicit size adjustments when properties differ modestly in size.
Real-World Application
An appraiser valuing a fourplex learns that local investors compare sales of two- to four-unit buildings on a price-per-unit basis. The appraiser uses price per unit as the primary unit of comparison rather than price per square foot.
More Sales Comparison Questions
Supported adjustments are: non-market financing $10,000, GLA $36/sf, garage $3,500 per car, pool/spa $12,500. A comparable identical to the 2,800 sf subject sold for $267,000 with non-market financing. What is its adjusted price?
Using GLA $36/sf and non-market financing $10,000: a 3,100 sf comparable sold for $277,000 with non-market financing; the subject has 2,800 sf. Bath count differences are not adjusted. What is the adjusted price?
Using garage $3,500 per car and pool/spa $12,500: a comparable with a 2-car garage and a pool/spa sold for $268,000. The subject has a 3-car garage and no pool. What is the adjusted price?
Using GLA $36/sf, garage $3,500 per car and pool/spa $12,500: a 2,600 sf comparable with a 2-car garage and a pool/spa sold for $264,000. The subject is 2,800 sf with a 3-car garage and no pool. What is the adjusted price?
In a neighborhood with declining values and marketing times over six months, what must Fannie Mae lenders confirm about the sales comparison analysis?
A house is a 4,000 square foot home in an area of 2,000 square foot homes. How must the appraiser treat this over-improvement in the sales comparison grid?
According to the Interagency Appraisal and Evaluation Guidelines, which items should an appraisal’s market conditions discussion include?
A comparable listed at $420,000 and sold for $399,000. What sale-to-list price ratio (sale price ÷ list price) does this indicate?
An appraiser wants to describe the neighborhood boundaries in a Fannie Mae report. Which approach is acceptable?
Which of these is listed by Fannie Mae as a sales or financing concession?
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Previous Question
Four sales are rated overall against a 2,000-square-foot colonial being appraised. Sale 1 sold for $455,000 and is inferior. Sale 2 sold for $459,000 and is superior, but verification shows it was a sale between family members at a price below market. Sale 3 sold for $468,000 and Sale 4 for $481,000; both are superior. Which price sets the upper limit of the subject's value?
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Which statement best describes what causes the need for a market-conditions (time) adjustment?