Humber/Ontario Real Estate Course 4 Exam Practice

What is a key factor to consider when estimating market value using comparable properties?

1. The sale date of comparable properties must be within a specific timeframe.

2. Nearby properties with the same number of bedrooms.

3. The sales must not include transfer of rights or conditional offers.

4. The transactions must be arm's length, not family-related.

5. Only properties transferred for profit should be included.

6. The age of the structures should be similar.

The correct answer is: The transactions must be arm's length, not family-related.

In the context of estimating market value using comparable properties, a critical factor to consider is whether the transactions are arm's length, meaning they are conducted between unrelated parties, each acting in their own self-interest. These types of transactions provide a more accurate reflection of market value because they are less likely to be influenced by familial ties, special relationships, or other non-market factors that could distort the true value of the properties involved. When transactions occur between family members or friends, they often do not represent fair market value, as pricing can be intentionally altered for various reasons, such as goodwill or to assist family members financially. By ensuring that the transactions are arm's length, the estimate for market value based on comparables is grounded in reality, representing actual willingness to pay by market participants under normal conditions. Considering factors such as the sale date, the number of bedrooms, or the age of structures are also important, but they are secondary to ensuring that the comparables used reflect unbiased market behavior. Transactions that are not arm's length can misrepresent how much similar properties would sell for in an open market, leading to potentially inaccurate estimations of value.