Humber/Ontario Real Estate Course 3 Exam Practice

Salesperson Lee has found a highly comparable property when estimating the market value of a subject property. The comparable has a newly constructed swimming pool, whereas the subject property does not. The pool originally cost $25,000, but its current market value is $15,000. What adjustment should Salesperson Lee make?

1. Salesperson Lee should make no adjustment since the pool is considered an addition.

2. Salesperson Lee should adjust based on the current market value of $15,000.

3. Adjust using the cost to construct, which is $25,000.

4. Consider half the cost and half the current value for the adjustment.

5. Adjust based on the median value between the construction cost and current value.

6. Request a professional appraisal of the pool's value for correct adjustment.

The correct answer is: Salesperson Lee should adjust based on the current market value of $15,000.

Salesperson Lee should adjust based on the current market value of $15,000 because the purpose of making adjustments when comparing properties is to reflect the value as it stands in the market at the time of the appraisal. In this case, the comparable property’s newly constructed swimming pool adds value to the property, but the relevant measure for adjustment is its current market value rather than its original construction cost. Using the current market value of $15,000 ensures that Lee's evaluation is aligned with what buyers in the market would be willing to pay for that feature right now. The original cost of $25,000 is no longer relevant since the value can change over time due to various factors such as depreciation, condition, and market demands. This approach promotes an accurate comparison of the properties based on present-day values, which is crucial in real estate transactions to provide potential buyers or investors with a realistic view of what they can expect in terms of value when considering the subject property against comparable properties.