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
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.
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To validate the functional form of a regression model used for adjustments, an appraiser plots residuals against predicted values and observes a clear inverted-U pattern. What does this pattern indicate, and what is the most defensible corrective action?
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