What are units of comparison in the sales comparison approach, and how should they be selected?
Correct Answer
C) The comparison units used by participants in the relevant market
Select units of comparison that reflect how participants in the relevant market analyze competing properties. An overall price per unit and a marginal feature adjustment are different measures; neither a tax-assessment convention nor a universal unit determines the correct choice.
Why This Is the Correct Answer
Option C is correct because units of comparison should be selected based on what market participants typically use for the type of property being appraised. Using the market's own units makes the comparison reflect how buyers and sellers actually analyze competing properties. That improves the relevance and credibility of the conclusion.
Why the Other Options Are Wrong
Option A: The unit preferred by the local assessor’s office for its tax rolls
Option A, the unit preferred by the local assessor's office for its tax rolls, is wrong because an assessment convention does not decide the correct unit. The choice should follow what buyers and sellers in the relevant market use.
Option B: The same unit for all property types
Option B, using the same unit for all property types, is wrong because different property types are analyzed differently by their markets. For example, apartment buyers may compare price per unit while land buyers may compare price per acre.
Option D: The unit that produces the largest value
Option D, the unit that produces the largest value, describes a biased selection aimed at a result. Units should reflect market behavior, not a desired value outcome.
Speak the market's language
Use the unit buyers and sellers use: if the market thinks in price per unit, so should the appraiser.
How to use: Use this when a question asks how to choose a unit of comparison.
Exam Tip
Options that pick a unit for convenience, uniformity, tax purposes or a higher value are typically wrong; look for the market-participant answer.
Common Mistakes to Avoid
- -Applying price per square foot to all property types
- -Choosing the unit that produces the highest indication
- -Adopting the assessor's measure without checking market practice
Concept Deep Dive
Analysis
This question tests how units of comparison are chosen. Units of comparison are components, such as price per square foot or price per unit, into which a property is divided for comparison. The appraiser selects them based on what buyers and sellers in that market typically use.
Background Knowledge
Units of comparison include measures such as price per square foot, price per room, price per apartment unit, or price per acre. The appraiser selects the units that participants in the relevant market typically use. An overall price per unit and a marginal adjustment for a feature are different measures and should not be confused.
Real-World Application
An appraiser valuing a small apartment building learns that local investors compare buildings by price per unit and gross rent multiplier. The appraiser uses those units rather than price per square foot alone.
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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