A sale is paid in cash on otherwise typical terms in an all-cash market. Considering only financing equivalency, what is warranted?
Correct Answer
B) No cash equivalency adjustment
The stated cash transaction has no financing advantage to normalize merely because the buyer paid cash. Other supported differences, including concessions or sale conditions, still require separate analysis when present. A cash payment is not by itself a reason for a discount, upward adjustment or rejection of a comparable.
Why This Is the Correct Answer
Option B is correct because a cash payment on otherwise typical terms in an all-cash market has no financing advantage to normalize. Cash equivalency adjusts for financing that affected the price, and here none did. Any separate differences such as concessions or sale conditions would still be analyzed on their own.
Why the Other Options Are Wrong
Option A: An upward adjustment for the lack of financing
Option A calls for an upward adjustment for the lack of financing. Paying cash does not lower the price in a market where cash is typical, so there is no financing effect to add back.
Option C: A downward adjustment for the cash discount
Option C calls for a downward adjustment for the cash discount. The stem describes typical terms in an all-cash market, so there is no evidence of a discount, and paying cash is not by itself a reason to adjust down.
Option D: Exclusion from the comparable set
Option D excludes the sale from the comparable set. A cash sale on typical terms is a normal market transaction and can be a perfectly good comparable.
Typical terms, no tweak
If the financing was typical for that market, there is nothing to convert to cash equivalency.
How to use: Use this when deciding whether a financing-related adjustment applies to a comparable.
Exam Tip
Read the stem's market description carefully: a cash sale in an all-cash market is the norm, not an unusual transaction.
Common Mistakes to Avoid
- -Assuming every cash sale reflects a discount
- -Rejecting cash sales as non-arm's-length
- -Overlooking concessions that still need separate analysis in a cash sale
Concept Deep Dive
Analysis
This question tests cash equivalency. A cash equivalency adjustment removes the price effect of nonmarket or favorable financing, but a cash sale on typical terms in an all-cash market has no financing advantage to remove. Considering only financing, no adjustment is needed.
Background Knowledge
Cash equivalency converts a sale price influenced by special financing, such as seller financing at a below-market rate or seller-paid points, into the price that would have been paid with typical market financing or cash. When the financing is typical for the market, no cash equivalency adjustment is needed. The test is whether the financing affected price.
Real-World Application
In a resort area where most condo buyers pay cash, an appraiser reviews a comparable bought with cash at a normal list-to-sale ratio and no concessions. The appraiser makes no financing adjustment and notes that cash purchases are typical in that market.
More Sales Comparison Questions
Supported adjustments are: non-market financing $10,000, GLA $36/sf, garage $3,500 per car, pool/spa $12,500. A comparable identical to the 2,800 sf subject sold for $267,000 with non-market financing. What is its adjusted price?
Using GLA $36/sf and non-market financing $10,000: a 3,100 sf comparable sold for $277,000 with non-market financing; the subject has 2,800 sf. Bath count differences are not adjusted. What is the adjusted price?
Using garage $3,500 per car and pool/spa $12,500: a comparable with a 2-car garage and a pool/spa sold for $268,000. The subject has a 3-car garage and no pool. What is the adjusted price?
Using GLA $36/sf, garage $3,500 per car and pool/spa $12,500: a 2,600 sf comparable with a 2-car garage and a pool/spa sold for $264,000. The subject is 2,800 sf with a 3-car garage and no pool. What is the adjusted price?
In a neighborhood with declining values and marketing times over six months, what must Fannie Mae lenders confirm about the sales comparison analysis?
A house is a 4,000 square foot home in an area of 2,000 square foot homes. How must the appraiser treat this over-improvement in the sales comparison grid?
According to the Interagency Appraisal and Evaluation Guidelines, which items should an appraisal’s market conditions discussion include?
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Previous Question
A verified pair of cash-equivalent sales in the same market has the superior site/view bundle at $642,000 and a matched property lacking it at $588,000. Rights, terms, time and other material characteristics are matched. A suitable comparable sold for $575,000. The subject is superior in this same feature; the comparable is inferior. Assume the observed contribution applies and no other adjustments. What signed site/view bundle adjustment and adjusted comparable price result?
Next Question
The appraiser of a 2,100-square-foot two-story house with four bedrooms has analyzed two sales: a dated 1,750-square-foot home that sold for $412,000 and is inferior, and a 2,600-square-foot home with a pool that sold for $498,000 and is superior. Closed sales of two-story homes of 1,950 to 2,300 square feet in the same subdivision during the past six months have not yet been reviewed. How should the appraiser narrow the bracket?