Humber/Ontario Real Estate Course 3 Exam Practice

A sale of a highly similar property from father to son may not be a good comparable for purposes of estimating a subject property's market value because:

1. The price paid may be an inaccurate reflection of true market value.

2. The sale is at arm's length.

3. All sales between family members would not be at market value.

4. The sale is not considered a valid transaction.

The correct answer is: The price paid may be an inaccurate reflection of true market value.

The reason why the sale of a highly similar property from father to son may not be a good comparable for estimating a subject property's market value is that the price paid in family transactions can often be influenced by non-market factors. In such cases, the amount exchanged may not reflect the true market value, as it may be based on familial relationships, emotional attachments, or agreements that do not align with prevailing market conditions. This can create a disparity between the transaction price and what buyers in the open market would be willing to pay for a similar property, thereby skewing the assessment of the subject property's value. In contrast, an arm's length transaction typically indicates that the parties involved are acting in their own self-interest, aiming to achieve the best possible price based on market conditions, which is not the case in many family transactions. Additionally, while some family sales might not be at market value, not all familial transactions are invalid or indicative of incorrect pricing, making it essential to consider each scenario individually. Thus, focusing on the potential inaccuracies in the pricing of family sales helps in accurately estimating market value for real estate assessments.