A comparable closed at $288,000. Verification establishes that financing concessions increased its price by $6,000. Market evidence supports a 2% upward time adjustment based on the normalized cash-equivalent price. What price results after those two adjustments?
Correct Answer
A) $287,640
Cash-equivalent price=288000−6000=282000. Apply time to that defined base: 282000 × 1.02 = 287640. The face amount of concessions alone would not establish the market price effect.
Why This Is the Correct Answer
Option A is correct because the cash-equivalent price is $288,000 minus $6,000, or $282,000. The 2% time adjustment is applied to that normalized base: $282,000 x 1.02 = $287,640. This follows the stated instruction that the time adjustment is based on the cash-equivalent price.
Why the Other Options Are Wrong
Option B: $287,760
Option B, $287,760, comes from applying the 2% time adjustment to the recorded $288,000 price first ($288,000 x 1.02 = $293,760) and then subtracting $6,000. The time adjustment should be applied to the $282,000 cash-equivalent price, giving $287,640.
Option C: $293,760
Option C, $293,760, applies the 2% time adjustment to the full $288,000 recorded price ($288,000 x 1.02) and ignores the $6,000 financing concession entirely. Removing the concession first gives $282,000 x 1.02 = $287,640.
Option D: $282,000
Option D, $282,000, removes the $6,000 concession ($288,000 - $6,000) but omits the supported 2% upward time adjustment. Applying it gives $282,000 x 1.02 = $287,640.
Clean the price, then age it
First clean the price by removing the concession effect, then age it forward with the time adjustment. A dirty price aged forward carries the error along.
How to use: Use this whenever a question gives both a concession and a percentage time adjustment.
Exam Tip
When a percentage adjustment follows a dollar adjustment, check which base the stem says to use; here the stem specifies the normalized cash-equivalent price.
Common Mistakes to Avoid
- -Applying the time adjustment to the recorded price before removing the concession
- -Removing the concession but forgetting the time adjustment
- -Adding a positive adjustment for the concession instead of a negative one
Concept Deep Dive
Analysis
This question tests the order of adjustments in the sales comparison grid. The financing concession is removed first to reach a cash-equivalent price, and the market conditions (time) adjustment is then applied to that normalized base, as the stem specifies. Getting the sequence right changes the final figure.
Background Knowledge
Transactional adjustments such as financing terms and conditions of sale are typically made before market conditions adjustments, because the time adjustment should be applied to a price that reflects typical cash-equivalent terms. A financing concession that inflated the price is removed with a downward adjustment, and the amount should reflect the market effect on price rather than simply the face amount of the concession.
Real-World Application
An appraiser verifies that a seller contributed toward the buyer's financing and that market evidence shows this raised the price by $6,000. The appraiser removes that effect first and then applies the paired-sales supported monthly market trend to the cash-equivalent figure before comparing it to the subject.
More Sales Comparison Questions
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Improvement cost new is $450,000. Separately supported improvement depreciation deductions of $45,000, $25,000, $15,000 are expressly nonoverlapping and not already excluded from cost new. Add supported site value of $125,000, already reflecting any site losses. What total indicated value results?
Which two depreciation categories may each be classified as curable or incurable by comparing the cost to remedy a deficiency with the value gained?
Improvement cost new is $800,000. Separately supported improvement depreciation deductions of $120,000, $80,000, $40,000 are expressly nonoverlapping and not already excluded from cost new. No site is included. What depreciated improvement amount results?
The principle of anticipation in real estate valuation states that:
Which highest-and-best-use criterion addresses whether a proposed use is allowed by zoning and applicable legal restrictions?
Three comparables produce adjusted indications of $312,000, $309,000 and $315,000, requiring gross adjustments of 9%, 14% and 22% respectively. Verification also establishes that the first sale is the closest competitive substitute and its adjustments are better supported than the other two. Which indication deserves the most weight on those facts?
When reconciling value indications from the three approaches to value, an appraiser should:
A property sold at a cash-equivalent price of $1,062,500. Its stabilized annual NOI is $85,000. What is the indicated overall rate?
In reconciliation, an appraiser should:
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