A comparable sold for $400,000 and requires a 5 percent upward market conditions adjustment. What is the adjusted price?
Correct Answer
D) $420,000
Why this is correct: A 5 percent upward adjustment on a 400,000 dollars sale price is calculated as 400,000 dollars * 0.05 = 20,000 dollars. The adjusted price is the sale price plus the adjustment: 400,000 dollars + 20,000 dollars = 420,000 dollars. Why the other choices are wrong: The choice of 405,000 dollars is incorrect; it adds only 5,000 dollars (a 1.25 percent adjustment). The choice of 380,000 dollars is wrong; it subtracts 20,000 dollars (a downward adjustment). The choice of 500,000 dollars is false; it multiplies by 1.25 (a 25 percent adjustment). Exam tip: For a percentage adjustment, multiply the sale price by the percentage (as a decimal) to find the adjustment amount, then add or subtract.
Why This Is the Correct Answer
Five percent of $400,000 is $20,000, and an upward adjustment adds it, producing $420,000. Upward is the appropriate direction when the market has risen since the comparable closed, because that older sale would have brought more had it transacted on the effective date. The adjustment must be supported by market evidence rather than assumed, but the arithmetic itself is simply the price times 1.05. Only one option reflects both the correct magnitude and the correct direction.
Why the Other Options Are Wrong
Option A: $405,000
$405,000 adds only $5,000, which is a 1.25 percent adjustment rather than five percent. The error comes from treating the numeral five as five thousand dollars instead of computing five percent of the price. It is the classic decimal slip and it appears in some form on nearly every percentage item.
Option B: $380,000
$380,000 subtracts $20,000, which is the right magnitude applied in the wrong direction. A downward adjustment would be correct only if the market had declined since the comparable sold, which contradicts the stem's word upward. Direction errors are as costly as magnitude errors and are easier to catch by reading the stem twice.
Option C: $500,000
$500,000 multiplies by 1.25, a 25 percent adjustment, which is five times what the stem specifies. The mistake is misplacing a decimal, treating 0.05 as 0.25 or reaching for a familiar quarter. A quick sanity check helps: a five percent move on a $400,000 sale should be tens of thousands, not a hundred thousand.
One Point Oh Five
Never compute a percentage adjustment in two steps if you can do it in one. Upward five percent is times 1.05, downward five percent is times 0.95. Writing the multiplier first eliminates both the decimal error and the direction error.
How to use: Read the stem, write the multiplier, multiply once, then scan the options. If your figure is absent, recheck the multiplier before recomputing the arithmetic, because the multiplier is where the error almost always lives.
Exam Tip
Estimate before you calculate. Ten percent of $400,000 is $40,000, so five percent must be about $20,000, which instantly rules out $405,000 and $500,000.
Common Mistakes to Avoid
- -Confusing the percentage numeral with a dollar amount
- -Applying the adjustment in the wrong direction
- -Using a market conditions adjustment that is asserted rather than supported by paired sales or trend data
Concept Deep Dive
Analysis
A market conditions adjustment, historically called a time adjustment, restates a comparable's price as of the effective date of the appraisal. It is a transactional adjustment applied to the price itself rather than to a property characteristic, and it is derived from market evidence such as resales of the same property, matched pairs across time, or documented trends in price per unit. Expressed as a percentage, it becomes a multiplier: an upward five percent adjustment means the price is multiplied by 1.05, equivalently the price plus five percent of the price. On $400,000 that is $400,000 plus $20,000, giving $420,000. The whole item turns on translating five percent of a number correctly and on getting the direction right.
Background Knowledge
You need to convert percentages to decimals and multipliers fluently, and to know that a market conditions adjustment is applied to the comparable's price to restate it as of the effective date. You should also know that the adjustment must be supported by market evidence such as paired resales or trend analysis, not assumed from general impressions.
Real-World Application
An appraiser documents that median price per square foot in the subject's submarket rose about five percent over the ten months since a comparable closed, supports the rate with paired resales of two properties that sold twice in that window, and applies a five percent upward market conditions adjustment as the first line of the grid.
More Statistics Questions
A set of comparable sales has a mean of $250,000 and a standard deviation of $20,000. What is the coefficient of variation?
A property sold for $400,000 and resold three years later for $463,050 with no physical change. What compound annual rate does this indicate?
A histogram of neighborhood sale prices shows two distinct peaks. What does this most likely mean?
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In a market study, what does a frequency distribution of sale prices show?
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An appraiser presents a statistical analysis in a report. What must accompany it for the reader to weigh it?
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Paired sales analysis and regression differ mainly in that regression:
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