Property Valuation
When a comparable sale was distressed (sold in foreclosure at below-market price), an appraiser should:
AUse it as a primary comparable since it represents an actual market sale
BCarefully consider whether it represents market value or make appropriate adjustments✓ Correct
CAlways reject it as not representative of market value
DUse it only if no other comparables are available
Explanation
Distressed sales (foreclosures, short sales, or sales under duress) may not represent arm's-length market value. An appraiser must carefully assess whether such sales reflect the current market, note their distressed nature, and make appropriate adjustments or weigh them accordingly.
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Key Terms to Know
Short Sale
A sale of real property where the sale proceeds are less than the outstanding mortgage balance, requiring lender approval.
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.
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