A comparable sold at a cash-equivalent price of $320,000 exactly 6 months before the effective date. Market data show a simple, non-compounded increase of 0.5% per month. No other adjustments apply. What is the time-adjusted price, to the nearest dollar?
Correct Answer
C) $329,600
320000×(1+0.005×6)=329600. Common errors: adjusting downward instead of upward gives $310,400; applying only one month of the change gives $321,600; misplacing the decimal in the 0.5% rate gives $416,000.
Why This Is the Correct Answer
Option C is correct because a simple monthly change of 0.5% over 6 months is 0.005 × 6 = 3%, and $320,000 × (1 + 0.03) = $329,600. With simple change, the rate applies only to the original price. The market change is an increase, so the adjustment is upward.
Why the Other Options Are Wrong
Option A: $310,400
Option A, $310,400, comes from adjusting downward instead of upward: $320,000 × (1 − 0.005 × 6) = $310,400. The correct calculation adds the 3% change: $320,000 × 1.03 = $329,600.
Option B: $321,600
Option B, $321,600, comes from applying only one month of the change: $320,000 × 1.005 = $321,600. The sale was 6 months earlier, so the correct figure is $320,000 × (1 + 0.005 × 6) = $329,600.
Option D: $416,000
Option D, $416,000, comes from misplacing the decimal in the 0.5% rate and using 5% per month: $320,000 × (1 + 0.05 × 6) = $416,000. The correct rate is 0.005 per month, giving $329,600.
Rate times months, then add
For simple change, multiply the monthly rate by the months, add 1, and multiply by the price.
How to use: Use this for any simple, non-compounded time adjustment.
Exam Tip
Convert the percentage to a decimal carefully (0.5% = 0.005) and use the full number of months.
Common Mistakes to Avoid
- -Applying the time adjustment in the wrong direction
- -Using only one month instead of the full period
- -Misplacing the decimal when converting the percentage
Concept Deep Dive
Analysis
This question tests a simple, non-compounded market conditions adjustment. The rate is applied to the original price for each month, then added to that price. Multiply 0.5% by 6 months to get a 3% total change, and adjust upward.
Background Knowledge
A market conditions (time) adjustment brings a comparable's price up to the effective date when values have changed. With simple change, each month's change is a fixed percentage of the original price. Time adjustments must be supported by evidence, such as resales of the same property.
Real-World Application
An appraiser finds resale evidence showing prices rose about 0.5% per month in the subject's neighborhood. A comparable that sold for $320,000 six months ago is adjusted to $329,600 to reflect conditions at the effective date.
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