Humber/Ontario Real Estate Course 4 Exam Practice

What challenge does a small town face in the direct comparison approach in real estate?

1. Over-reliance on current sale prices only.

2. The difficulty in finding suitable comparable sales.

3. Lack of clarity among sellers and buyers about the approach.

4. Disadvantages highlighted by local court systems.

5. Intrinsic flaws in property assessment models.

6. Limited historical sales data for comparison.

The correct answer is: The difficulty in finding suitable comparable sales.

The correct answer centers on the difficulty faced in finding suitable comparable sales in a small town context. In real estate, the direct comparison approach relies on analyzing sales data of similar properties to assess value. In smaller communities, there may be fewer properties that meet the criteria for comparison due to low transaction volumes or lack of similar features, which complicates the valuation process. This scarcity makes it challenging for appraisers and agents to find accurate and relevant comps, potentially leading to less reliable property valuations. The other options, while they pertain to potential issues in real estate evaluation, do not specifically capture the unique challenge posed by the limited market activity typical in smaller towns. For instance, over-reliance on current sale prices only might occur in any market, but it isn't a distinct issue for small towns alone. Similarly, lack of clarity among sellers and buyers can arise in any setting due to varying levels of knowledge about valuation methods, but it is not as intrinsic to the small town context. Issues related to local court systems and property assessment models can impact real estate transactions broadly rather than specifically highlighting the limitations faced by smaller towns in the direct comparison method. Lastly, while limited historical sales data can be relevant, the main hurdle is often about the lack of suitable,