A comparable sold for all cash in a market where financed sales dominate. The appraiser should:
Correct Answer
D) Test whether the cash terms affected price, and adjust if shown
Investigate whether cash terms or related transaction circumstances produced a material price effect relative to the relevant market basis. Cash payment does not automatically require adding ordinary loan costs, deducting 10% or rejecting a sale. Do not infer a correction’s direction solely from the cash label; distinguish financing terms from motivation and use supported evidence.
Why This Is the Correct Answer
Option D is correct because the appraiser should test whether the cash terms produced a material price effect compared with the relevant market basis, and adjust only if one is shown. Market value is price in cash or its equivalent, so a cash sale is not inherently distorted. Any adjustment needs supported evidence and should separate financing terms from buyer or seller motivation.
Why the Other Options Are Wrong
Option A: Deduct a standard ten percent from the all-cash sale price
Option A is wrong because deducting a standard ten percent from the all-cash price is an unsupported fixed figure. Any adjustment must be based on evidence of an actual price effect.
Option B: Reject the sale, since cash buyers behave unpredictably
Option B is wrong because rejecting the sale on the claim that cash buyers behave unpredictably has no basis. A cash sale can be a valid comparable once its terms are analyzed.
Option C: Add the typical loan costs to the recorded price for parity
Option C is wrong because adding typical loan costs to the recorded price assumes a price effect without testing it. Cash payment does not by itself require that adjustment.
Test first, adjust if shown
A cash label is a question, not an answer. Test the price effect, then adjust only if the evidence shows one.
How to use: Use this rule for any question about adjusting sales with unusual or cash terms.
Exam Tip
Answers with a standard fixed percentage or an automatic rejection are usually wrong in financing adjustment questions.
Common Mistakes to Avoid
- -Applying a fixed percentage discount to cash sales
- -Excluding cash sales from the comparable set by default
- -Adding loan costs without evidence of a price effect
Concept Deep Dive
Analysis
This question tests how to handle an all-cash comparable in a market dominated by financed sales. Cash terms do not by themselves dictate an adjustment or its direction. The appraiser should investigate whether the cash terms or related circumstances affected price and adjust only when the evidence shows an effect.
Background Knowledge
Market value is generally defined in terms of cash or its equivalent, so financing adjustments aim to convert non-cash-equivalent prices to that basis. Whether cash terms affect price depends on the local market, such as whether cash buyers obtain discounts. Adjustments for financing must be supported by market evidence.
Real-World Application
An appraiser finds a comparable bought for cash by an investor in a market of mostly FHA and conventional buyers. She checks similar cash and financed sales and talks to the listing agent to see whether the cash offer drew a discount before deciding whether to adjust.
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?
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A cash-equivalent comparable sold for $360,000. Signed dollar adjustments are +$18,000, −$9,000 and −$3,600. What signed net adjustment percentage of the sale price results, to one decimal place?
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