A comparable sale had the following conditions: seller was relocating and needed to close within 30 days, property was marketed for only 2 weeks, and final sale price was 8% below the original asking price. This sale would be considered:
Correct Answer
B) A distressed sale requiring upward adjustment
The rushed timeline, limited marketing period, and below-asking sale price indicate seller pressure and non-typical market conditions, suggesting this is a distressed sale that would require upward adjustment to reflect normal market conditions.
Why This Is the Correct Answer
The rushed timeline, limited marketing period, and below-asking sale price indicate seller pressure and non-typical market conditions, suggesting this is a distressed sale that would require upward adjustment to reflect normal market conditions.
Why the Other Options Are Wrong
Option A: An arm's length transaction requiring no adjustment
This is not an arm's length transaction because the seller was under duress due to relocation timing constraints. The 30-day closing requirement, limited 2-week marketing period, and 8% price reduction all indicate non-typical market conditions that prevented normal negotiation dynamics. An arm's length transaction requires both parties to act without pressure and with adequate market exposure.
Option C: A superior transaction requiring downward adjustment
A superior transaction would involve conditions that resulted in a higher-than-market sale price, requiring downward adjustment. This scenario shows the opposite - seller pressure leading to a below-market sale price. The rushed timeline and limited marketing actually hurt the seller's negotiating position rather than enhanced it.
Option D: Unsuitable for use as a comparable sale
While this sale has problematic conditions, it's not necessarily unsuitable if proper adjustments can be made. Distressed sales can still provide valuable market data when adjusted upward to reflect what the price would have been under normal market conditions. Complete exclusion should be reserved for sales that cannot be reasonably adjusted or lack sufficient data for proper analysis.
DISTRESS Signal
D-Duress present, I-Inadequate marketing time, S-Seller pressure, T-Time constraints, R-Reduced price, E-Emergency situation, S-Stressed conditions, S-Sale needs upward adjustment
How to use: When analyzing a comparable sale, run through the DISTRESS checklist. If multiple factors are present (duress, time pressure, limited marketing, below-asking price), it signals a distressed sale requiring upward adjustment to reflect normal market conditions.
Exam Tip
Look for multiple distress indicators in the same transaction - one factor alone might not indicate distress, but combinations like 'quick closing + limited marketing + below asking price' clearly signal non-arm's length conditions requiring adjustment.
Common Mistakes to Avoid
- -Assuming any below-asking sale is automatically distressed without considering other market factors
- -Failing to recognize that distressed sales can still be valuable comparables with proper adjustment
- -Confusing distressed sales with superior sales when time pressure is involved
Concept Deep Dive
Analysis
This question tests understanding of market conditions and transaction adjustments in the sales comparison approach. An arm's length transaction occurs between willing, knowledgeable parties under normal market conditions without duress. When sales occur under pressure or unusual circumstances, they may not reflect true market value and require adjustments. The key is identifying indicators of distressed conditions such as time constraints, limited marketing exposure, and pricing below market expectations. Appraisers must recognize these red flags and determine whether to adjust the sale price or exclude it entirely from analysis.
Background Knowledge
Appraisers must understand the difference between arm's length transactions and distressed sales to properly analyze comparable data. Market conditions, motivation levels, and transaction circumstances all affect sale prices and may require adjustments to reflect typical market behavior.
Real-World Application
In practice, appraisers frequently encounter distressed sales due to job relocations, divorces, foreclosures, or estate settlements. These sales provide market data but must be adjusted upward (typically 5-15%) to reflect what a non-pressured seller would have achieved with normal marketing time and negotiation conditions.
More Market Analysis Questions
Which comparable selection criterion is MOST important when choosing sales for a residential appraisal?
A residential subdivision has absorbed 120 units over the past 18 months. Based on this historical data, how long would it take to sell 80 remaining lots?
Which of the following is the correct sequence for analyzing highest and best use?
A market has 500 homes sold in the past 12 months and currently has 180 homes for sale. The monthly absorption rate is:
When analyzing highest and best use, which of the following would make a use financially infeasible?
People Also Study
Valuation Principles & Procedures
25% of exam
Property Description & Analysis
20% of exam
Appraisal Math & Statistics
15% of exam
USPAP (Ethics & Standards)
15% of exam
Report Writing & Compliance
10% of exam
Previous Question
A retail property analysis reveals three potential uses: gas station ($75,000 annual income), convenience store ($60,000 annual income), and fast-food restaurant ($90,000 annual income). All are legally and physically feasible. Which represents the highest and best use?
Next Question
Market analysis shows 200 homes sold in the past 12 months with an average marketing time of 45 days. Currently 180 homes are listed for sale. What is the monthly absorption rate?