A seller who must close within two weeks to avoid a lender’s deadline accepts a price below what similar homes bring. Why might this sale not indicate market value?
Correct Answer
C) Because market value assumes neither party is under undue pressure
Market value assumes reasonable exposure and that neither buyer nor seller can take advantage of the other’s exigencies. A seller forced to close quickly may accept less, so the sale must be investigated and possibly excluded or adjusted, not automatically used.
Why This Is the Correct Answer
Option C is correct because market value assumes that neither buyer nor seller is under undue pressure and that neither can take advantage of the other's exigencies. A seller facing a two-week lender deadline may accept less, so the sale must be investigated and possibly adjusted or excluded.
Why the Other Options Are Wrong
Option A: Because any sale below list price is excluded from market value analysis
Option A, that any sale below list price is excluded from market value analysis, is wrong because many arm's-length sales close below list price. A below-list price alone does not disqualify a sale.
Option B: Because short marketing periods are not permitted in any appraisal
Option B, that short marketing periods are not permitted in any appraisal, is wrong because appraisers can analyze such sales; they investigate how the shortened exposure affected the price. Some value types even presume limited exposure.
Option D: Because the buyer received a bargain, which is a concession by definition
Option D, that the buyer received a bargain which is a concession by definition, is wrong because a concession is a seller-paid cost or incentive, not simply a low price. The issue here is seller duress, not a concession.
No pressure, no distortion
Market value assumes typically motivated parties; a seller racing a deadline is not typical.
How to use: Use this when deciding whether a sale meets the conditions of market value.
Exam Tip
Look for the answer tied to a condition in the market value definition rather than broad rules about list price or marketing time.
Common Mistakes to Avoid
- -Excluding sales simply because they closed below list price
- -Using pressured sales without investigation
- -Confusing a low price with a seller concession
Concept Deep Dive
Analysis
This question tests the conditions in the definition of market value. Market value assumes reasonable exposure and that neither party is acting under undue pressure. A seller forced to close quickly to meet a lender's deadline is under such pressure, so the sale price may not reflect market value without investigation.
Background Knowledge
Each sale used as a market value indicator should be investigated to see whether the conditions of the market value definition were present. If a condition is missing, the appraiser determines whether and how much it affected the price. Distressed or pressured sales may need adjustment or exclusion.
Real-World Application
An appraiser learns that a comparable sold quickly because the seller faced a lender's payoff deadline. Verification shows the price was below similar homes. The appraiser either adjusts with support or gives the sale little weight and explains why.
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