A comparable sold for $400,000 including $12,000 of furniture. Market conditions then support a +5% adjustment. If the non-realty item is removed before the market conditions adjustment is applied, what is the price after these two steps?
Correct Answer
A) $407,400
Non-real property items are removed first, in dollars: $400,000 − $12,000 = $388,000. The market conditions adjustment is then applied to that amount: $388,000 × 1.05 = $407,400. Applying the 5% first and then deducting the furniture gives $408,000.
Why This Is the Correct Answer
Option A is correct because the furniture is removed first, $400,000 − $12,000 = $388,000. The +5% market conditions adjustment is then applied: $388,000 × 1.05 = $407,400. Removing non-real property first keeps the time adjustment from being applied to the furniture.
Why the Other Options Are Wrong
Option B: $408,000
Option B is wrong because $408,000 uses the reverse order: $400,000 × 1.05 − $12,000 = $408,000. The furniture should be removed first, giving ($400,000 − $12,000) × 1.05 = $407,400.
Option C: $420,000
Option C is wrong because $420,000 leaves the furniture in the price: $400,000 × 1.05 = $420,000. The $12,000 of non-realty must be removed first, giving $407,400.
Option D: $388,000
Option D is wrong because $388,000 removes the furniture but skips the market conditions adjustment: $400,000 − $12,000 = $388,000. The +5% still applies, giving $388,000 × 1.05 = $407,400.
Strip Personal Property First
Take out what is not real estate before applying any percentage, so the percentage applies only to the real property.
How to use: Use this rule whenever a sale includes furniture or other personal property and a percentage adjustment follows.
Exam Tip
Follow the order the question gives, and remember that changing the order of a dollar and a percentage adjustment changes the answer.
Common Mistakes to Avoid
- -Applying the percentage before removing non-realty items
- -Leaving personal property in the sale price
- -Forgetting the market conditions step
Concept Deep Dive
Analysis
This question tests the order of adjustments when a dollar transaction adjustment and a percentage market conditions adjustment are both needed. Non-real property items are removed first in dollars. The market conditions percentage is then applied to the remaining real estate price.
Background Knowledge
Adjustments for property rights, cash equivalence and non-real property items are typically made in dollars, and early in the sequence. Market conditions adjustments often follow and may be percentages. Order matters when percentage adjustments are mixed with dollar adjustments.
Real-World Application
A furnished condo sold for $400,000, and the buyer received $12,000 of furniture. The appraiser removes the furniture value and then applies a 5% market conditions adjustment. The adjusted price is $407,400.
More Sales Comparison Questions
Supported adjustments are: non-market financing $10,000, GLA $36/sf, garage $3,500 per car, pool/spa $12,500. A comparable identical to the 2,800 sf subject sold for $267,000 with non-market financing. What is its adjusted price?
Using GLA $36/sf and non-market financing $10,000: a 3,100 sf comparable sold for $277,000 with non-market financing; the subject has 2,800 sf. Bath count differences are not adjusted. What is the adjusted price?
Using garage $3,500 per car and pool/spa $12,500: a comparable with a 2-car garage and a pool/spa sold for $268,000. The subject has a 3-car garage and no pool. What is the adjusted price?
Using GLA $36/sf, garage $3,500 per car and pool/spa $12,500: a 2,600 sf comparable with a 2-car garage and a pool/spa sold for $264,000. The subject is 2,800 sf with a 3-car garage and no pool. What is the adjusted price?
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A house is a 4,000 square foot home in an area of 2,000 square foot homes. How must the appraiser treat this over-improvement in the sales comparison grid?
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