The principle underlying the sales comparison approach is:
Correct Answer
D) Substitution — a buyer pays no more than for an equal alternative
Why this is correct: The principle of substitution is the foundation of the sales comparison approach. A rational buyer will pay no more for a property than the cost of acquiring a similar, substitute property. Why the other choices are wrong: Conformity is a related principle but not the underlying basis for the approach. Anticipation of future income is the principle underlying the income approach. Contribution of each component is a principle of the cost approach. Exam tip: Substitution is the key principle for sales comparison. It explains why comparables work.
Why This Is the Correct Answer
Why this is correct: The principle of substitution is the foundation of the sales comparison approach. A rational buyer will pay no more for a property than the cost of acquiring a similar, substitute property. Why the other choices are wrong: Conformity is a related principle but not the underlying basis for the approach. Anticipation of future income is the principle underlying the income approach. Contribution of each component is a principle of the cost approach. Exam tip: Substitution is the key principle for sales comparison. It explains why comparables work.
More Sales Comparison Questions
Excess land differs from surplus land in that excess land:
A paired sales analysis reveals that homes with stainless-steel appliances sell for $2,100 more than identical homes with standard appliances — but only when the homes are priced below $350,000. In the subject’s neighborhood, median sale price is $410,000. What is the appraiser’s obligation regarding the $2,100 appliance adjustment?
GLA differs by 210 sq ft between subject and comparable. Paired sales support $65 per sq ft of living area. The line adjustment is:
Paired sales are drawn from transactions six months apart in a stable market. The time adjustment needed is:
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A comparable sold 8 months ago for $250,000 in a market appreciating 6% per year. What is the time-adjusted price?
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