California Real Estate Broker ExaminationValuation and AppraisalEasy
A real estate broker is performing a Comparative Market Analysis (CMA) for a client who is interested in selling their single-family home. The broker has identified three comparable properties that recently sold in the neighborhood. Which of the following adjustments would typically be made to the comparable properties when using the sales comparison approach within a CMA?
- AAdjust the assessed value of the subject property to match the comparable sales.
- BAdjust the subject property's price based on the comparable sales.
- CAdjust the sales prices of the comparable properties to reflect differences from the subject property.
- DAdjust the broker's commission rate based on the average of the comparable sales.
Show answer & explanationAnswer & explanation
Correct answer: C. Adjust the sales prices of the comparable properties to reflect differences from the subject property.
In the sales comparison approach, adjustments are always made to the comparable properties, not the subject property. This process brings the comparables' features in line with the subject's features to derive an estimated value for the subject.
Why the other options are wrong
- A. Assessed value is for tax purposes and not directly adjusted in a CMA for market value estimation.
- B. Adjustments are made to the comparables, not the subject property, in the sales comparison approach.
- D. Broker commission rates are unrelated to property valuation adjustments in a CMA.
Sales Comparison Approach Adjustments
In the sales comparison approach, the prices of recently sold comparable properties are adjusted to account for differences between them and the subject property, making them functionally equivalent to the subject.
- Always adjust the comparable properties, never the subject.
- Adjustments are made for differences in features, location, time of sale, etc.
- The goal is to estimate the subject property's value by making comparables similar.
Memory trick: Compare the 'apples' to the 'apples' by modifying the 'other apples'.