After adjustment, four comparables indicate $355,000–$362,000 but the pending contract on the subject is $380,000. What should the appraiser do?
Correct Answer
B) Report the supported range and analyze — not follow — the contract
Why this is correct: An appraiser's value conclusion must be based on market evidence from comparable sales. A pending contract is one data point to be analyzed, but if it significantly differs from the adjusted comparable range, the appraiser must investigate the reason (e.g., special financing, buyer motivation) and reconcile to the supported market range. Why the other choices are wrong: Reconciling to the contract price blindly follows a single data point, abandoning independent judgment. Averaging the contract with adjusted sales mixes a subject-specific price with market-derived indications. Adding a momentum adjustment is arbitrary and unsupported. Exam tip: The sales comparison approach derives value from the market, not from a single subject contract.
Why This Is the Correct Answer
Option B is right because the appraiser reports the supported range and analyzes the contract rather than following it. Analysis means investigating the terms - concessions, financing, personal property included, timing, relationship of the parties - and disclosing what was found and how it affected the conclusion. If the investigation reveals that the contract reflects non-market terms, the conclusion stays with the sales; if it reveals a genuine market shift the sales have not yet captured, that is a market conditions issue to be supported and adjusted for across all the comparables. Either way the contract informs the analysis without dictating it.
Why the Other Options Are Wrong
Option A: Reconcile to the contract price, since it is the freshest data
Freshness is a reason to examine a data point closely, not a reason to adopt it, and a pending contract is not a closed sale at all. Reconciling straight to the contract price would replace the appraiser's independent opinion with the parties' negotiation, which is advocacy dressed as recency. It would also make the appraisal useless to the lender, whose entire reason for ordering it is an independent check on the contract.
Option C: Average the contract with the adjusted sales
Averaging a subject-specific negotiated price with market-derived indications mixes two different kinds of evidence and produces a figure supported by neither. The adjusted sales are estimates of subject value; the contract is a transaction term. Blending them buries the disagreement rather than resolving it.
Option D: Add a 5% adjustment to each comparable for momentum
A five percent across-the-board adjustment for momentum is an unsupported number invented to reach a desired result. If the market is genuinely appreciating, a market conditions adjustment must be derived from evidence such as resales, listing-to-sale ratios, or time-series analysis, and applied according to each sale's date. Adjusting every comparable by the same figure to close a gap with the contract is working backward from the answer.
Analyze does not mean adopt
The standard says analyze the contract. Analyze does not mean adopt. Read it, verify its terms, explain what it shows, and then conclude from the market. A contract is evidence about two people; sales are evidence about the market.
How to use: When a stem sets a contract price against a supported range, look for the option that investigates and discloses rather than the one that follows, averages, or manufactures an adjustment. Then ask whether anything in the stem would justify a market conditions adjustment supported by evidence.
Exam Tip
Remember that the requirement covers listings and options too, not just contracts, and that it runs to the subject property specifically.
Common Mistakes to Avoid
- -Treating the contract price as the value conclusion
- -Failing to read the contract and its addenda for concessions and personal property
- -Inventing a blanket market conditions adjustment to close a gap
- -Omitting the required analysis of the agreement of sale from the report
Concept Deep Dive
Analysis
This question tests the relationship between a subject's pending contract and the market evidence. USPAP Standards Rule 1-5(a) requires the appraiser to analyze all agreements of sale, options, and listings of the subject property current as of the effective date of the appraisal - analyze, which means examine and account for, not adopt. A contract is a single negotiated outcome between two specific parties, and it can sit above the market for many reasons: seller-paid concessions rolled into price, an inexperienced or emotionally committed buyer, a relocation or corporate transferee, non-market financing, a related-party arrangement, or simply a buyer who overpaid. Four adjusted sales spanning seven thousand dollars, by contrast, describe what a range of participants actually did. When a single contract sits roughly five percent above that band, the appraiser's job is to find out why and to say so, then conclude from the evidence that best represents market behavior.
Background Knowledge
You need USPAP Standards Rule 1-5(a) requiring analysis of all agreements of sale, options, and listings of the subject property current as of the effective date, and the reporting obligation to disclose that analysis. You should also know how to derive a market conditions adjustment from evidence, the common reasons a contract price departs from market value, and the definition of market value with its conditions about typically motivated parties and terms not affected by special financing or concessions.
Real-World Application
An appraiser finds a contract twenty-five thousand above the adjusted range and, on reading it, discovers a fifteen-thousand-dollar seller credit and a washer, dryer, and pool table conveying. She reports the analysis, notes the effective price net of concessions and personal property, and concludes within the supported range with the discrepancy fully explained.
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