Within the sales comparison approach, adjusted sales are $402,000 (gross adjustments 4%), $415,000 (18%) and $398,000 (22%). Which reconciliation best follows accepted guidance?
Correct Answer
A) Give most weight to the most comparable $402,000 sale
The adjustments made to each comparable should be evaluated and the greatest weight given to the sales that are closest in comparability to the subject. The $402,000 sale needed the least adjustment.
Why This Is the Correct Answer
Option A is correct because the greatest weight should go to the sales closest in comparability to the subject. The $402,000 sale needed only 4% gross adjustment, far less than the 18% and 22% for the other two. It is therefore the most comparable sale.
Why the Other Options Are Wrong
Option B: Use the $415,000 sale, since it is the highest indication
Option B uses the $415,000 sale because it is the highest indication. That sale needed 18% gross adjustment, and being the highest figure says nothing about comparability.
Option C: Average the three adjusted sales equally to $405,000
Option C averages the three adjusted sales equally to $405,000, which is ($402,000 + $415,000 + $398,000) / 3. Equal averaging ignores that the $402,000 sale is much more comparable than the others.
Option D: Use the $398,000 sale, since it is the lowest indication
Option D uses the $398,000 sale because it is the lowest indication. That sale needed the most adjustment, 22%, so it is the least comparable.
Least adjusted, most trusted
The sale you had to change the least is the one most like the subject.
How to use: Use this rule when weighting comparables by their adjustments.
Exam Tip
Compare gross adjustment percentages, not the adjusted prices. The lowest percentage usually points to the best comparable.
Common Mistakes to Avoid
- -Choosing the highest or lowest adjusted price
- -Averaging adjusted prices without regard to comparability
- -Using net adjustment instead of gross adjustment to judge comparability
Concept Deep Dive
Analysis
This question tests reconciliation within the sales comparison approach using gross adjustment percentages. The sale with the least total adjustment is generally the most comparable and deserves the most weight. Picking the highest, lowest or the average ignores comparability.
Background Knowledge
Gross adjustment percentage sums all adjustments regardless of sign and divides by the sale price. Lower gross adjustment usually indicates a sale more similar to the subject and more reliable as an indicator.
Real-World Application
An appraiser has three adjusted sales and notes one required only minor adjustments for a smaller garage. She places most weight on that sale and explains its similarity to the subject.
More Reconciliation Questions
In a cost approach for an improved property, an appraiser estimates site value by sales comparison, allocation and extraction, then settles on one site-value figure before final reconciliation. How is this step best described?
An extraordinary assumption was reasonably supported, properly used and disclosed in an appraisal report. Later, the assumed information is found to be false. Which conclusion is best supported?
An otherwise applicable valuation approach cannot be developed reliably from the available data. The remaining scope can produce credible assignment results. What should the appraiser do?
May an appraiser use a hypothetical condition in any assignment?
An appraisal has a current effective date and permits an extraordinary assumption if its requirements are met. Which situation involves uncertain information rather than a fact known to be contrary to reality on that date?
Why must a report identify any real property interest that is being excluded from the value opinion?
Which review best helps explain divergent cost, sales-comparison and income indications?
Two value indications are $340,000 and $392,000. What is the difference as a percentage of the lower indication, rounded to one decimal place?
An unauthorized third party requests a lender-client’s report. No due-process or other permitted disclosure exception applies. How should the appraiser respond?
An appraiser proposes to assume there are no hidden defects. Which fact would characterize that assumption as extraordinary under the USPAP 2024 definition, rather than justify dismissing it as routine boilerplate?
People Also Study
Real Estate Market
13.6% of exam
Property Description
11.8% of exam
Land or Site Valuation
4.5% of exam
Sales Comparison Approach
16.4% of exam
Cost Approach
13.6% of exam