A buyer paid a $20,000 premium for the lot next door to complete a land assemblage. Under what label is that comparable's price corrected?
Correct Answer
C) Conditions of sale
Why this is correct: The governing concept in the sales comparison approach is that adjustments are made for differences between comparables and the subject. Conditions of sale adjustments account for transactional factors such as motivation, financing, or sale concessions. An assemblage premium paid by a buyer to acquire a lot next door is a special motivation falling under conditions of sale, requiring an adjustment to reflect market value. Why the other choices are wrong: "Financing terms" is incorrect because financing adjustments relate to loan terms, not assemblage premiums. "Market conditions" is incorrect because market conditions adjustments account for time-related changes, not buyer-specific motivations. "Physical characteristics" is incorrect because physical adjustments are for differences in property attributes, not sale conditions. Exam tip: Assemblage premiums are classic conditions of sale adjustments; strip them out to normalize the comparable.
Why This Is the Correct Answer
The neighboring owner paid extra because combining the two parcels creates value the lot cannot produce standing alone, which is atypical motivation rather than a property characteristic. Atypical motivation is corrected under conditions of sale, so the $20,000 premium is removed to normalize the comparable before any further adjustment. Failing to strip it out would import one buyer's special situation into the subject's value conclusion.
Why the Other Options Are Wrong
Option A: Financing terms
Financing terms adjustments address below-market seller financing, buydowns, assumed loans at favorable rates and similar arrangements that inflate a recorded price. Nothing in the stem concerns how the purchase was financed. The premium arose from the buyer's assemblage objective, not from loan terms.
Option B: Market conditions
Market conditions adjustments account for price movement between the comparable's transaction date and the effective date of the appraisal. This premium has nothing to do with elapsed time; it would have been paid on any date. Time and motivation are separate elements of comparison.
Option D: Physical characteristics
Physical characteristics adjustments cover size, age, condition, quality, amenities and similar attributes of the property itself. The adjoining lot's physical traits did not change because a neighbor wanted it. The extra dollars reflect who the buyer was, which is a transactional matter.
Who, When, What
Ask three questions in order. Who was the buyer and were they typical? That is conditions of sale. When did it sell? That is market conditions. What is the property like? That is location and physical. The assemblage buyer fails the first question.
How to use: When a stem explains why a particular buyer paid more or less than others would, that explanation is a conditions of sale fact. Adjust it out before you compare anything about the dirt.
Exam Tip
Assemblage premium, foreclosure, estate sale and sale between relatives are all conditions of sale; commit that short list to memory.
Common Mistakes to Avoid
- -Filing atypical buyer motivation under financing terms
- -Using an assemblage sale unadjusted as a comparable
- -Applying transactional adjustments after physical adjustments
Concept Deep Dive
Analysis
The sales comparison approach applies adjustments in a defined sequence, and each element of comparison has a specific scope. Real property rights conveyed, financing terms, conditions of sale and expenditures made immediately after purchase are transactional adjustments applied first, on a sequential basis, to reach a normalized price. Market conditions follow, adjusting for time. Only then come location and physical characteristics. Conditions of sale captures atypical motivation of buyer or seller: a related-party transaction, a forced sale, a 1031 deadline, or an assemblage premium paid by an adjoining owner. Assemblage or plottage premiums are the classic textbook example because the buyer's willingness to overpay comes from a value that exists only for that buyer, not from anything about the parcel itself.
Background Knowledge
You need the elements of comparison and the required order in which transactional adjustments are applied before market conditions and physical adjustments. You also need to recognize atypical motivation, including assemblage and plottage premiums, forced sales and related-party transfers, as conditions of sale issues.
Real-World Application
An appraiser valuing an infill lot discovers the most recent nearby sale went to the abutting owner at a premium to complete a development site, verifies the motivation with the broker, and either adjusts the price downward or sets the sale aside with an explanation.
More Sales Comparison Questions
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