Valuation, Pricing, and Market Analysis
Core Concepts
Candidates must understand the principles of property valuation, including the three approaches: cost, income, and direct comparison. You should know how to prepare a comparative market analysis (CMA) and the factors that affect value (location, condition, size, market conditions). Also, understand the concept of highest and best use, and the difference between assessed value and market value. Know the role of an appraiser and when an appraisal is required.
Traps in Questions
A common trap is confusing assessed value (for property tax) with market value. Another trap is the use of the income approach for residential properties – it's typically used for commercial or investment properties. Also, questions may test the adjustments made in a CMA: you adjust the comparable property's price to reflect differences (e.g., if the comparable has a garage and the subject does not, you subtract the value of the garage from the comparable's price).
Worked Example / Rule of Thumb
Rule: In a CMA, adjust the comparable sale price to reflect differences. For example, if the comparable sold for $300,000 and has a finished basement valued at $20,000, but the subject does not, the adjusted value is $280,000. Always adjust the comparable to the subject, not the other way around.
Additional Concepts
Understand market conditions: seller's market (low inventory, rising prices), buyer's market (high inventory, falling prices), and balanced market. Know how to analyze absorption rates and days on market. Also, be familiar with the role of the appraisal in mortgage financing.