Market data show land prices rising at a straight-line rate of about 4% per year, without compounding. A comparable land sale closed 18 months before the effective date of the appraisal. What market-conditions adjustment is indicated for this sale?
Correct Answer
B) An upward adjustment of roughly 6 percent to the price
Under the stated simple approximation, 18/12 × 4% = 6%, so the old sale is adjusted upward approximately 6%. Actual market-condition adjustments must reflect supported price behavior over the interval; a compounded annual model would give a slightly different result.
Why This Is the Correct Answer
Option B is correct because the market rose about 4% per year and the sale is 18 months old, so simple proration gives 18/12 × 4% = 6%. A sale made in a lower market must be adjusted upward to reflect the higher price level on the effective date. A compounded model would give a slightly different figure, which is why the answer is described as roughly 6 percent.
Why the Other Options Are Wrong
Option A: A downward adjustment, as the sale predates the effective date
Option A says a downward adjustment applies because the sale predates the effective date. In a rising market an older sale reflects lower prices, so it must be adjusted upward, not downward.
Option C: No adjustment, since 18 months is within tolerance
Option C claims no adjustment is needed because 18 months is within tolerance. The stem gives market evidence of a 4% annual rise, so an 18-month-old sale reflects a measurably lower price level and needs an adjustment of about 6%.
Option D: An upward adjustment of exactly 4 percent per sale
Option D applies exactly 4 percent, which is the full one-year rate. It ignores that the sale is 18 months old; prorating gives 18/12 × 4% = 6%, not 4%.
Rising market, raise old sales
If prices went up since the sale, the old sale price was too low for today, so lift it. Scale the yearly rate by months divided by 12.
How to use: Use this whenever a question pairs an older sale with a stated rate of price change.
Exam Tip
First decide the direction from the market trend, then compute the size by prorating the annual rate for the months elapsed.
Common Mistakes to Avoid
- -Adjusting an older sale downward in a rising market
- -Applying the full annual rate without prorating for elapsed months
- -Skipping a time adjustment even though market evidence shows price change
Concept Deep Dive
Analysis
This question tests the direction and size of a market-conditions (time) adjustment when prices have been rising. Because the sale occurred while prices were lower, the comparable must be brought up to effective-date levels. With simple proration, the annual rate is scaled to the elapsed time: 18 months is 1.5 years, so 1.5 × 4% = 6%.
Background Knowledge
A market-conditions adjustment accounts for changes in price levels between a comparable's sale date and the effective date of the appraisal. It is typically expressed as a percentage and applied to the sale price, and it should reflect supported price behavior over the interval rather than a fixed rule of thumb.
Real-World Application
An appraiser valuing a residential lot finds the best land sale closed a year and a half ago. Paired resales in the area show values rising about 4% per year, so the appraiser adjusts that sale upward by about 6% before comparing it to the subject.
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