What is the theoretical basis for the direct sales comparison approach to market valuation


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What is the difference between market value and investment value



1i. What is the theoretical basis for the direct sales comparison approach to market valuation?


1ii.The final price for each comparable property reached after all adjustments have been made is termed the:

a. Final estimate of value.

b.Final adjusted sale price.

c.Market value.

d. Indication of subject value.


2i. What main difficulty would you foresee in attempting to estimate the value of a 30-year-old property by means of the cost approach?


2ii. Which of the following is not included in accrued depreciation when applying the cost approach to valuation?

a.Physical obsolescence.

b.Functional obsolescence.

c.Economic obsolescence.

d.Tax depreciation.


3.The cost approach to market valuation does not work well in markets that are overbuilt. Explain why.


4i.What is meant by functional obsolescence? Could a new building suffer from functional obsolescence


4ii. A new house in good condition that has a poor floor plan would suffer from which type of accrued depreciation?

a.Short-lived curable physical deterioration.

b.Long-lived incurable physical deterioration.

c.Curable functional obsolescence.

d.Incurable functional obsolescence.

e.External obsolescence.


5i. Why is an estimate of the developer’s fair market profit included in the cost estimate?


5ii. To reflect a change in market conditions between the date on which a comparable property sold and the date of appraisal of a subject property, which type of adjustment is made?

a.Conditions of sale.

b.Market conditions.


d.Financing terms.



6i. What is the difference between market value and investment value?


6ii. A comparable property sold 10 months ago for $98,500. If the appropriate adjustment for market conditions is 0.30% per month (without compounding), what would be the adjusted price of the comparable property?






7i. Contrast self-contained appraisal reports, summary appraisal reports, and restricted appraisal reports.


7ii. A comparable property sold six months ago for $150,000. The adjustments for the various elements of comparison have been calculated as follows:

Location: —5 percent.

Market conditions: +8 percent.

Physical characteristics: +$12,500.

Financing terms: — $2,600.

Conditions of sale: None.

Legal characteristics: None.

Use: None.

Nonrealty items: —$3,000.

Making the adjustments in the order suggested in Exhibit 7-6, what is the comparable property’s final adjusted sale price indication of the subject’s value?






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