Mortgage Loan Originator (MLO) Licensing Practice Test

What adjustment is considered in the Sales Comparison Approach?

1. Loan interest rates

2. Sale date and proximity

3. Borrower's credit score

4. Appraisal fees

The correct answer is: Sale date and proximity

The Sales Comparison Approach is a common method used in real estate appraisals to determine the value of a property by comparing it to similar properties that have recently sold in the same area. When appraisers use this approach, they make adjustments for various factors to ensure a fair valuation. The sale date and proximity of comparable sales are crucial elements because they help in assessing how market conditions have changed over time and how similar the properties are in terms of location. For instance, if a comparable property sold recently, it is likely to reflect current market conditions more accurately than one that sold several years ago. Similarly, the proximity to the subject property is important as it implies that the properties will have similar characteristics and market influences. Adjustments for sale date account for any appreciation or depreciation in the market, while proximity adjustments ensure that the comparison remains valid by accounting for differences that may arise from being in different neighborhoods or areas. Thus, considering sale date and proximity is essential in ensuring that the appraisal reflects an accurate and fair market value.