A comparable sold for $324,000 exactly 18 months before the effective date. Market prices have increased at a simple, non-compounded rate of 0.35% per month. The comparable also requires a −$11,000 physical adjustment stated in effective-date dollars. What is the adjusted price?
Correct Answer
B) $333,412
324000 × (1 + 0.0035 × 18) − 11000 = 333412. Common errors: adding the physical adjustment instead of subtracting it gives $355,412; leaving out the physical adjustment gives $344,412; adjusting for time downward instead of upward gives $292,588.
Why This Is the Correct Answer
Option B is correct because $324,000 × (1 + 0.0035 × 18) = $324,000 × 1.063 = $344,412, and subtracting the $11,000 physical adjustment gives $333,412. The rising market moves the older sale price upward, and the negative physical adjustment then reduces it. Because the physical adjustment is in effective-date dollars, it is applied after the time adjustment, not before.
Why the Other Options Are Wrong
Option A: $292,588
Option A, $292,588, comes from adjusting for time downward instead of upward: $324,000 × (1 − 0.0035 × 18) − $11,000 = $303,588 − $11,000 = $292,588. The market change is an increase, so the correct result is $324,000 × 1.063 − $11,000 = $333,412.
Option C: $344,412
Option C, $344,412, is only the time-adjusted price, $324,000 × 1.063 = $344,412; it leaves out the −$11,000 physical adjustment. Subtracting it gives the correct $333,412.
Option D: $355,412
Option D, $355,412, adds the physical adjustment instead of subtracting it: $344,412 + $11,000 = $355,412. The adjustment is stated as −$11,000, so the correct result is $344,412 − $11,000 = $333,412.
Time first, then features
Bring the sale to today's dollars with the time adjustment, then apply feature adjustments that are already stated in today's dollars. The sign on the feature adjustment tells you whether to add or subtract.
How to use: Use this order whenever a question gives a percentage time change plus a dollar feature adjustment stated in effective-date dollars.
Exam Tip
Compute the simple total rate first (monthly rate × months) and multiply the price by 1 plus that rate. Then check the sign on each dollar adjustment before applying it.
Common Mistakes to Avoid
- -Applying the time adjustment as a decrease in a rising market
- -Forgetting to apply the physical adjustment after the time adjustment
- -Adding a negative adjustment instead of subtracting it
Concept Deep Dive
Analysis
This question tests whether you can apply a simple monthly market-conditions adjustment and then a dollar feature adjustment in the right order and direction. The time adjustment comes first because the physical adjustment is already stated in effective-date dollars. Multiply the 0.35% monthly rate by 18 months to get 6.3%, apply it to the sale price, then subtract the $11,000 physical adjustment.
Background Knowledge
Adjustments are made to the comparable, not the subject. A market-conditions (time) adjustment brings an older sale price to the effective date, and time adjustments must be supported by evidence. Percentage and dollar adjustments can be combined, but each must be applied to the correct base and in a logical order.
Real-World Application
An appraiser uses an 18-month-old sale in a market with documented, steady appreciation. After applying the supported time adjustment, the appraiser deducts for the comparable's superior condition, using a figure extracted from current paired sales.
More Sales Comparison Questions
Which stated cause of supported value loss is external?
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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Previous Question
A comparable sold at a cash-equivalent price of $500,000 exactly 8 months before the effective date. Prices in the market have risen at a simple, non-compounded rate of 6% per year. No other adjustments apply. What is the time-adjusted price, to the nearest dollar?
Next Question
Two sales are alike except for a fireplace and their sale dates. The home with a fireplace sold for $265,000 six months before the effective date, and the home without a fireplace sold for $258,000 at the effective date. Market values rose at a simple rate of 0.5% per month during that time. After adjusting the older sale for market conditions, what contribution does the pair indicate for the fireplace?