A land comparable sold 18 months ago in a market rising about 4 percent a year. What adjustment direction applies?
Correct Answer
B) An upward adjustment of roughly 6 percent to the price
Why this is correct: In a market rising about 4% per year, an 18-month-old sale requires an upward time adjustment. Eighteen months is 1.5 years; 1.5 years × 4% per year = 6% upward adjustment. The adjustment brings the old sale price to an estimated current market level as of the effective date. Why the other choices are wrong: A downward adjustment would incorrectly treat the older sale as if the market were declining. No adjustment, since 18 months is within tolerance, is incorrect; tolerance is not a fixed rule, and market conditions dictate adjustment. An upward adjustment of exactly 4 percent per sale is wrong because the adjustment is per year, not per sale, and must reflect the actual time period. Exam tip: Calculate time adjustments proportionally: annual rate × (months/12).
Why This Is the Correct Answer
Why this is correct: In a market rising about 4% per year, an 18-month-old sale requires an upward time adjustment. Eighteen months is 1.5 years; 1.5 years × 4% per year = 6% upward adjustment. The adjustment brings the old sale price to an estimated current market level as of the effective date. Why the other choices are wrong: A downward adjustment would incorrectly treat the older sale as if the market were declining. No adjustment, since 18 months is within tolerance, is incorrect; tolerance is not a fixed rule, and market conditions dictate adjustment. An upward adjustment of exactly 4 percent per sale is wrong because the adjustment is per year, not per sale, and must reflect the actual time period. Exam tip: Calculate time adjustments proportionally: annual rate × (months/12).
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