An appraiser labels a comparable's market-conditions adjustment a 'time adjustment.' According to appraisal principles, what actually creates the need for this adjustment?
Correct Answer
C) Shifts in demand and supply or inflationary or deflationary forces
Although often called a time adjustment, the market-conditions adjustment is not caused by the simple passage of time. It is needed when demand and supply have shifted or inflationary or deflationary forces have changed prices between the sale date and the valuation date. Physical wear is a condition difference, and list-to-sale differences are not market change.
Why This Is the Correct Answer
Option C is correct because the market-conditions adjustment is caused by shifts in economic variables affecting demand and supply, or by inflationary or deflationary forces, not by the passage of time itself.
Why the Other Options Are Wrong
Option A: The passage of months between the sale and the effective date
Option A attributes the adjustment to the months that have passed. Time is only the period over which the market may have changed; if conditions were stable, no adjustment is needed despite the elapsed months.
Option B: Physical wear on the comparable property since its sale date
Option B points to physical wear since the sale date. Differences in physical condition are handled as a separate physical adjustment, not as a market-conditions adjustment.
Option D: Differences between the comparable's list price and its sale price
Option D points to the gap between list and sale price. That gap reflects negotiation on one sale, not a change in market conditions between the sale date and the effective date.
Markets move, not clocks
A calendar page turning does not change value; shifts in demand, supply or price levels do.
How to use: Use this when deciding whether an older comparable needs a market-conditions adjustment.
Exam Tip
If a stable market is described, expect that older comparables may need no market-conditions adjustment, as long as the evidence supports it.
Common Mistakes to Avoid
- -Applying an adjustment just because a sale is older
- -Mixing condition changes into the market-conditions adjustment
Concept Deep Dive
Analysis
The question targets a common misconception: that older sales need adjusting simply because they are older. The adjustment exists to reflect changes in market conditions, so if demand, supply and price levels have not changed, time alone does not call for an adjustment.
Background Knowledge
Market conditions can change rapidly or stay the same for long periods. The market-conditions adjustment brings a comparable's price to the conditions at the valuation date and can be measured from resales of the same property or from sales of very similar properties at different times.
Real-World Application
An appraiser uses a sale from ten months ago in a rural area where prices have been stable. Because repeat sales and paired data show no change in market conditions, the appraiser makes no adjustment and explains that time alone does not warrant one.
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