Property Valuation
In South Dakota, which statement about the 'sales comparison approach' is correct?
AIt is only valid when there are at least 10 recent comparable sales
BIt is based on the principle of substitution and relies on recent market data from similar property sales✓ Correct
CIt is the only approach allowed for residential properties
DIt requires an MAI designation to use
Explanation
The sales comparison approach is based on the principle of substitution: a buyer will pay no more for a property than the cost of an equivalent substitute. It relies on recent sales of comparable properties, with adjustments made for differences from the subject property.
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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.
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.
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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