A verified related-party transfer is 10% below a supported otherwise-comparable market benchmark. What should be investigated before relying on it?
Correct Answer
D) Whether atypical motivation or other terms affected its price.
The verified family relationship plus stated below-market price raises a possible atypical-motivation issue. Investigate terms and market effect; neither relation alone nor a discounted list/benchmark automatically proves a specific adjustment. Family sales can be recorded and verified.
Why This Is the Correct Answer
Option D is correct because a sale between relatives may not represent market value due to love and affection or other factors. A verified family relationship plus a price 10% below a supported benchmark raises a possible atypical-motivation issue. The appraiser investigates the motivation and terms and their effect on price before relying on the sale.
Why the Other Options Are Wrong
Option A: Whether each family deed must be left unrecorded.
Option A asks whether each family deed must be left unrecorded. Family sales can be recorded, and recording status does not address whether the price reflects market value.
Option B: A rule that related-party transfers cannot be verified.
Option B suggests a rule that related-party transfers cannot be verified. That is wrong because the question states the transfer is verified, and family sales can be verified like other sales.
Option C: A rule that family sales use seller financing as a matter of course.
Option C suggests a rule that family sales use seller financing as a matter of course. No such rule exists; the terms must be investigated for each sale rather than assumed.
Family ties, check motives
When buyer and seller are related, ask whether affection rather than the market set the price.
How to use: Use this when a comparable involves a related-party transfer.
Exam Tip
For related-party sales, look for the answer that investigates motivation and terms rather than one that invents a blanket rule.
Common Mistakes to Avoid
- -Using a related-party sale without checking motivation
- -Assuming family sales cannot be verified or recorded
- -Assuming the relationship alone proves a specific adjustment
Concept Deep Dive
Analysis
This question tests how to treat a related-party sale priced below the market. A family transfer can be influenced by love and affection or other factors, so the price may not reflect market value. Reason through what the appraiser should investigate before relying on the sale.
Background Knowledge
Market value assumes typically motivated buyers and sellers acting in their own interest. Related-party sales can involve atypical motivation, such as a discount for a family member. The appraiser verifies the circumstances and decides whether the sale can be used, adjusted or excluded.
Real-World Application
An appraiser finds a comparable that a parent sold to an adult child at about 10% below similar sales. After speaking with the parties, the appraiser learns the price was discounted as a gift and decides not to rely on it as a market sale.
More Sales Comparison Questions
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