A comparable closed at $275,000 with a $6,000 seller credit and sits in a market that rose 3% in the year since. Corrected in proper sequence, what is its indicated price?
Correct Answer
A) $277,070, applying the credit first, then the year's growth
Why this is correct: The sequence is transactional adjustments first, then market conditions. Step 1, remove the concession: $275,000 - $6,000 = $269,000, the cash-equivalent price on the date it closed. Step 2, bring that cash-equivalent price forward a year at 3%: $269,000 x 1.03 = $277,070. Reversing the order would give $275,000 x 1.03 = $283,250 less $6,000 = $277,250, because it inflates the concession along with the price. Why the other choices are wrong: '$283,250, adding the year's growth first' applies the 3% to the full recorded price and never removes the $6,000 credit at all. '$269,000, with no market-conditions step' stops after the concession adjustment and ignores the stated 3% market movement. '$277,070 minus rounding, about $276,000' takes the right figure and then discards $1,070 to no purpose; rounding is a reporting choice, not an adjustment step. Exam tip: Cash-equivalence first, time second. Any concession left in the price when you apply the time factor gets escalated along with it.
Why This Is the Correct Answer
Removing the $6,000 credit converts the recorded $275,000 into a $269,000 cash-equivalent price. Applying the year's 3% market movement to that clean figure gives $269,000 x 1.03 = $277,070. The order matters here to the tune of $180: doing it the other way escalates the concession by 3% as well, which has no economic meaning because the credit was a fixed dollar amount at closing.
Why the Other Options Are Wrong
Option B: $283,250, adding the year's growth first
$275,000 x 1.03 = $283,250 applies the market movement but never removes the $6,000 seller credit, so the concession stays in the indicated price and is inflated along with it. The recorded price is not the cash-equivalent price whenever a concession is present.
Option C: $269,000, with no market-conditions step
$269,000 is the correct result of step one and nothing more. The stem supplies a 3% market movement over the intervening year, and ignoring stated market evidence understates the indication. Cash equivalence is the beginning of the sequence, not the end of it.
Option D: $277,070 minus rounding, about $276,000
This starts from the right arithmetic and then throws away $1,070 in the name of rounding. Rounding is applied, if at all, to the final reconciled value opinion, not to an individual comparable's indication. Nothing in the stem supports a $1,000 rounding convention.
Clean it, then move it
Clean the price before you move it through time. Everything that describes the deal itself, including credits, buydowns and unusual motivations, is stripped out first. Only a clean, cash-equivalent number is worth escalating or de-escalating for market conditions.
How to use: In any two-step numeric item with a concession and a time factor, do the subtraction before the multiplication and check which order the answer choices describe. The two orders give figures a few hundred dollars apart, and both usually appear.
Exam Tip
Compute both orders quickly. The exam frequently puts the wrong-order figure right next to the right one, and the label on the option is as much a part of the answer as the number.
Common Mistakes to Avoid
- -Applying the time adjustment to the recorded price with the concession still in it
- -Stopping at cash equivalence and ignoring a stated market trend
- -Rounding an individual comparable's indication instead of the reconciled opinion
Concept Deep Dive
Analysis
The sales comparison approach applies adjustments in a fixed order because several of them are multiplicative and therefore order-sensitive. Property rights, financing terms, conditions of sale and expenditures made immediately after purchase are settled first, producing a cash-equivalent price as of the transaction date. Market conditions are applied next, moving that cash-equivalent price to the effective date. Only then do the physical and locational adjustments follow. A seller credit is a financing or sale-condition item, so it comes out before the time factor is applied.
Background Knowledge
You need the standard sequence of adjustments: real property rights conveyed, financing terms, conditions of sale, expenditures made immediately after purchase, market conditions, and then location and physical characteristics. You also need to know that a seller credit is a financing or sale-condition concession that must be removed to reach a cash-equivalent price.
Real-World Application
A comparable closed with the seller paying $6,000 of the buyer's costs in a market that has moved since. The appraiser's grid shows a $6,000 line under conditions of sale and a separate percentage line for market conditions, so a reviewer can see that the time factor was applied to the cash-equivalent price.
More Sales Comparison Questions
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