Property Valuation
A Kentucky appraiser discovers that all three comparable sales were distressed sales (foreclosures). The appraiser should:
AUse them as-is because they are actual market sales
BAdjust for market conditions or seek non-distressed comparables for the best estimate of market value✓ Correct
CReport the situation to KREC
DUse only the highest comparable value
Explanation
Distressed sales may not reflect fair market value. An appraiser should make appropriate adjustments for market conditions or find non-distressed comparables to accurately estimate the subject's market value.
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Key Terms to Know
Appraisal
A professional estimate of a property's market value prepared by a licensed or certified appraiser.
Comparable Sales (Comps)Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
Capitalization Rate (Cap Rate)A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
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