Valuation and Market Analysis
The three approaches
Sales comparison (best for existing residential), cost (replacement cost less depreciation plus land - best for new or unusual properties), and income (capitalization and gross rent multipliers - best for investment property). Reconciliation weights the approach most reliable for that property type and data quality.
Adjustments - the exam's favorite math
Compare the subject to each comparable and adjust the comparable toward the subject: if the comparable is superior, subtract; if inferior, add. Never adjust the subject. Adjustment amounts come from the market, and time adjustments reflect market change between the sale date and the effective date.
CMA versus appraisal
A licensee may prepare a comparative market analysis or broker price opinion but may not perform an appraisal in a federally related transaction without certification. USPAP, workfile, and report-content requirements apply to appraisers, not agents.
Formulas
Gross rent multiplier = price ÷ gross rent (use monthly or annual consistently). Cap rate = net operating income ÷ price; value = NOI ÷ cap rate. Straight-line depreciation for tax purposes; market-derived depreciation for the cost approach. 1 acre = 43,560 sq ft; 1 mile = 5,280 ft.
Market conditions
Track absorption - months of inventory. Under roughly six months suggests a seller's market; over six suggests a buyer's market.
Traps and worked example
Traps: adjusting the subject instead of the comparable, applying an adjustment in the wrong direction, using price-per-square-foot across very different home sizes without a size adjustment, and calling a CMA an appraisal. Worked example: a comparable sold for $300,000 with a one-car garage; the subject has a two-car garage worth $15,000 more. Because the comparable is inferior, add: adjusted value = $315,000.