Humber/Ontario Real Estate Course 3 Exam Practice

Which statement is correct regarding the direct comparison approach?

1. Time adjustment unnecessary if sale occurred recently

2. A good comparable is not at arm's length

3. If a comparable feature is better, make a plus adjustment

4. Lack of recent comparables limits validity

5. If a comparable feature is worse, make a plus adjustment

6. All comparables must have identical square footage

The correct answer is: Lack of recent comparables limits validity

The correct statement regarding the direct comparison approach is that a lack of recent comparables limits validity. In real estate appraisals, particularly when using the direct comparison method, it is essential to have comparable sales data that reflects current market conditions. When there are no recent comparables, the appraiser faces challenges in determining a reliable market value, as property values can fluctuate over time due to various factors such as economic conditions, demand, or local trends. Without recent comparables, any adjustments made based on older data may not accurately represent the current value of the property being appraised. In the context of real estate appraisals, comparables are critical as they provide a basis for value estimation. The more recent the comparables, the more relevant they are to the current property market. Therefore, if there is a lack of recent comparables, it undermines the credibility and accuracy of the appraisal, leading to potentially misleading conclusions about the property's value.