All of the following affect real estate values in subsequent years, except:
Correct Answer
D) The purchase price paid for a property. Simulated Exam #2 203
the purchase price paid for a property — because in real estate appraisal, value is determined by current market conditions, utility, and future income potential, not by what a prior buyer chose to pay. The principle of 'market value' under USPAP (Uniform Standards of Professional Appraisal Practice) is defined as the most probable price a property would sell for in a competitive and open market, which is entirely independent of any single historical transaction price. A property purchased at an inflated price during a market bubble, for example, does not retain that value simply because someone once paid it.
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- → An appraiser in California is using the cost approach for a property in Sacramento and must account for entrepreneurial profit (also called developer's profit). A local developer confirms that typical profit margins in the Sacramento market are 15-20% of total development costs. How should the appraiser handle entrepreneurial profit?
- → A California buyer's agent is reviewing comparable sales data and notices that the county recorder's office lists different documentary transfer tax amounts for similar properties in the same city. Some properties show both a county and city transfer tax, while others show only the county tax. What does this difference indicate about the sale verification process?
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