Humber/Ontario Real Estate Course 2 Exam Practice

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Which statement is correct about the direct comparison approach in real estate?

  1. A time adjustment is unnecessary, if the sale occurred less than five weeks ago.

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

  3. If a feature in the comparable property is better than the subject property, a plus adjustment is made.

  4. Few recent comparables can severely limit the validity of the direct comparison approach.

  5. A historic property will always make a good comparable.

  6. Comparable properties must only be similar in age and style.

The correct answer is: Few recent comparables can severely limit the validity of the direct comparison approach.

Option D is correct because few recent comparables can indeed severely limit the validity of the direct comparison approach in real estate valuation. Having a limited number of recent comparable sales can make it challenging to accurately determine the market value of the subject property. Without recent and relevant comparables, it becomes difficult to make appropriate adjustments and arrive at a precise valuation. This underscores the importance of having a sufficient number of recent comparable sales to ensure the accuracy of the direct comparison approach. Options A, B, C, E, and F are incorrect: A: A time adjustment may still be necessary even if the sale occurred less than five weeks ago since market conditions can change rapidly. B: A good comparable should ideally be at arm's length, meaning the parties involved should not have a close relationship or vested interest in the transaction. C: If a feature in the comparable property is better than the subject property, a negative adjustment is typically made, not a plus adjustment. E: A historic property may not always make a good comparable, as its unique characteristics and age may not be directly comparable to the subject property. F: Comparable properties should not only be similar in age and style but also in location, size, condition, and other relevant factors for a more accurate valuation.

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