Property Valuation
An appraiser describes a comparable sale as a 'distressed sale' or 'non-arm's-length transaction.' Why might the appraiser give this sale less weight?
ADistressed sales are typically above market value
BThe sale may not reflect typical market conditions because one or both parties were not acting freely✓ Correct
CLenders require appraisers to exclude all distressed sales
DA distressed sale always means the property had physical defects
Explanation
A non-arm's-length transaction (foreclosure, related-party sale, duress sale) may not reflect open market conditions. Appraisers seek arm's-length transactions where both parties are acting freely, knowledgeably, and in their own best interest, as required by the market value definition.
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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.
DepreciationA reduction in the value of an improvement (building) over time due to physical deterioration, functional obsolescence, or external factors.
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