A sale where the buyer paid cash in an all-cash market requires:
Correct Answer
B) No cash equivalency adjustment
Why this is correct: The core principle is that adjustments are made only when a comparable sale's terms differ from the prevailing market conditions. The original explanation states that cash equivalency corrects for financing that differs from market norms. Here, the market itself is described as 'all-cash,' meaning cash payment is the norm. Therefore, a cash sale is already at market terms and requires no adjustment. Why the other choices are wrong: An upward adjustment for the lack of financing is incorrect because in an all-cash market, there is no 'lack' of financing; cash is the standard. A downward adjustment for a cash discount is wrong because a discount implies a concession, but in this market, paying cash is the expected, not a concession. Exclusion from the comparable set is unnecessary; a cash sale in a cash market is a perfectly valid comparable. Exam tip: For financing adjustments, always identify the market norm first. If the sale terms match the norm, no adjustment is needed.
Why This Is the Correct Answer
No cash equivalency adjustment is required because the sale's terms match the prevailing market terms, leaving nothing to restate. Cash equivalency exists to convert atypical terms to typical ones, and here the terms are already typical by the stem's own description. Recognizing that the benchmark is market-specific rather than universal is the concept being tested. The sale enters the grid at its recorded price, subject only to the ordinary property adjustments.
Why the Other Options Are Wrong
Option A: An upward adjustment for the lack of financing
There is no lack of financing to compensate for when cash is the market standard, and adjusting upward would push the comparable above what the market actually pays. The option imports an assumption from financed markets into a cash market. It also gets the direction wrong even in a financed market, where any cash discount would call for an upward adjustment only if a discount were demonstrated.
Option C: A downward adjustment for the cash discount
A cash discount is a concession granted for speed and certainty in a market where sellers ordinarily wait for financing. Where every buyer pays cash, sellers have no reason to discount for it, so no concession exists to remove. Applying a downward adjustment would understate the comparable and, through the grid, the subject.
Option D: Exclusion from the comparable set
A sale on typical market terms is the ideal comparable, not a candidate for exclusion. Excluding it would discard the cleanest possible evidence and leave the appraiser with a thinner data set. Exclusion is for transactions whose terms cannot be verified or whose distortions cannot be measured, neither of which applies here.
Find the Norm First
Never ask whether a sale was cash or financed. Ask what this market usually does, then ask whether this sale did something different. Only a difference from the norm triggers an adjustment.
How to use: In any financing question, locate the phrase describing the market's prevailing terms before evaluating the sale. If the sale matches, choose the no-adjustment answer regardless of how unusual the terms look in the abstract.
Exam Tip
The same norm-first logic governs concessions, conditions of sale, and even property rights. Adjustments measure departures from what is typical, not departures from what a candidate assumes is typical.
Common Mistakes to Avoid
- -Assuming cash sales always warrant a discount adjustment
- -Failing to establish the market's typical financing terms before adjusting
- -Believing that any conventionally financed sale requires a cash equivalency adjustment
Concept Deep Dive
Analysis
Cash equivalency is not a rule about cash; it is a rule about deviation from the market's own norm. Market value definitions specify payment in cash or its equivalent on terms typical for the area, which means the benchmark is whatever financing arrangement prevails in that particular market. In a market where financing dominates, an all-cash purchase is atypical and may or may not have produced a discount, which the appraiser must test. In a market where cash is the norm, such as much raw land, many small commercial properties, and certain investor-dominated segments, a cash purchase is the benchmark itself and there is nothing to restate. The logic generalizes: the appraiser identifies what typical terms are, then adjusts only sales that departed from them. A related point that trips candidates is that most conventionally financed sales are already cash equivalent to the seller, since the lender funds the full price at closing, so the mere presence of a mortgage does not create a distortion either.
Background Knowledge
You need the market value definition's reference to financing terms typical for the area, the concept and purpose of cash equivalency, and the practice of identifying the market norm before deciding whether any adjustment applies. You should also know that paired sales analysis is the standard way to test whether a market actually reacts to a transaction characteristic.
Real-World Application
An appraiser valuing rural acreage finds that essentially every comparable closed for cash, since lenders in the area rarely finance unimproved land. She documents that cash is the market norm, applies no financing adjustment to any comparable, and explains the finding so a reviewer does not expect one.
More Sales Comparison Questions
Excess land differs from surplus land in that excess land:
A paired sales analysis reveals that homes with stainless-steel appliances sell for $2,100 more than identical homes with standard appliances — but only when the homes are priced below $350,000. In the subject’s neighborhood, median sale price is $410,000. What is the appraiser’s obligation regarding the $2,100 appliance adjustment?
GLA differs by 210 sq ft between subject and comparable. Paired sales support $65 per sq ft of living area. The line adjustment is:
Paired sales are drawn from transactions six months apart in a stable market. The time adjustment needed is:
The most appropriate unit of comparison is determined by:
A comparable superior to the subject in every adjusted category should produce an indication that is:
Three sales support $520,000; the borrower's purchase contract is $505,000. May the appraisal conclude above the contract price?
A comparable sold for $300,000 with the seller carrying a loan 2 points below market, a benefit worth $8,000. What is its cash-equivalent price?
Why is a foreclosure sale generally a poor comparable in a stable market?
A comparable sold 8 months ago for $250,000 in a market appreciating 6% per year. What is the time-adjusted price?
People Also Study
Real Estate Market
13.6% of exam
Property Description
11.8% of exam
Land or Site Valuation
4.5% of exam
Cost Approach
13.6% of exam
Income Approach
8.2% of exam
Previous Question
Two sales differ by a finished basement and by six months of market movement. To isolate the basement's value the appraiser must:
Next Question
The subject has a three-car garage; the comparable has two. If the market pays $9,000 for the third bay, the adjustment to the comparable is: