Real Estate Math
An appraiser estimates a property at $425,000 using the sales comparison approach and $410,000 using the cost approach. The final reconciled value is $420,000. The sales comparison approach received the most weight. This is appropriate because:
AThe cost approach is always less reliable
BThe sales comparison approach is most supported by market data for residential properties✓ Correct
CThe appraiser is required to average the approaches
DThe higher value is always used
Explanation
For residential properties with good comparable sales data, the sales comparison approach is typically given the most weight as it directly reflects how buyers and sellers behave in the market.
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Key Terms to Know
Comparable Sales (Comps)
Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
Private Mortgage Insurance (PMI)Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
AppraisalA professional estimate of a property's market value prepared by a licensed or certified appraiser.
Capitalization Rate (Cap Rate)A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
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