Property Valuation
When a comparable sale was a foreclosure or distressed sale, the appraiser should:
AUse it as the primary comparable since it represents recent market activity
BEither exclude it or make adjustments to reflect market-level conditions, as distressed sales may not represent arm's-length market value✓ Correct
CUse it only for the cost approach
DAverage it with at least three other non-distressed comparables
Explanation
Distressed or foreclosure sales may not represent arm's-length, market-value transactions because sellers may be under compulsion. Appraisers typically exclude such sales or make appropriate adjustments when comparing them to a market-value subject.
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Key Terms to Know
Adjustable-Rate Mortgage (ARM)
A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Comparable Sales (Comps)Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
AppraisalA professional estimate of a property's market value prepared by a licensed or certified appraiser.
Purchase AgreementA legally binding contract between a buyer and seller that outlines the terms and conditions of a real estate sale.
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