How does a 'market conditions' adjustment differ from a 'conditions of sale' adjustment?
Correct Answer
B) One captures price-level change over time; the other, atypical motivation in a deal
Market conditions address supported price movement between a comparable’s contract date and the appraisal effective date. Conditions of sale address relevant motivations or circumstances of a particular transaction. Either can warrant a supported adjustment or none; neither is limited to declining markets or foreclosures. Their effects should not be double counted.
Why This Is the Correct Answer
Option B is correct because a market conditions adjustment reflects supported price movement between the comparable's contract date and the effective date, while a conditions-of-sale adjustment reflects atypical motivation or circumstances in that specific deal. They measure different things and should not be double counted.
Why the Other Options Are Wrong
Option A: They are simply two interchangeable names for the standard time adjustment
Option A says they are interchangeable names for the time adjustment. Only the market conditions adjustment concerns time; conditions of sale concern the circumstances of the transaction.
Option C: Market conditions adjustments apply in declining markets but not rising ones
Option C says market conditions adjustments apply in declining markets but not rising ones. Market conditions adjustments can be upward or downward and apply whenever prices have moved, whether rising or falling.
Option D: Conditions of sale adjustments are limited to foreclosure transactions
Option D says conditions-of-sale adjustments are limited to foreclosure transactions. They can apply to many situations, such as related-party sales or unusual motivations, not just foreclosures.
Market is when, sale is why
Market conditions ask when the sale happened and how prices moved since; conditions of sale ask why this deal may have been atypical.
How to use: Use this to separate the two adjustments on the exam.
Exam Tip
If the issue is price change over time, think market conditions; if it is motivation or relationship of the parties, think conditions of sale.
Common Mistakes to Avoid
- -Treating the two terms as synonyms
- -Believing time adjustments apply only in declining markets
- -Counting the same price effect under both adjustments
Concept Deep Dive
Analysis
This question tests the difference between two commonly confused adjustments. Market conditions adjustments address price-level change over time, while conditions-of-sale adjustments address atypical circumstances of a particular transaction.
Background Knowledge
The market conditions adjustment is typically stated as a percentage change per time period. A threshold question for conditions of sale is whether the sale meets the conditions of a fair market value transaction. Both are made only when supported by evidence.
Real-World Application
A comparable sold eight months ago to a buyer who was the seller's neighbor. The appraiser makes a market conditions adjustment for the rise in local prices since then and separately investigates whether the neighbor relationship affected the price.
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?
A comparable listed at $420,000 and sold for $399,000. What sale-to-list price ratio (sale price ÷ list price) does this indicate?
An appraiser wants to describe the neighborhood boundaries in a Fannie Mae report. Which approach is acceptable?
Which of these is listed by Fannie Mae as a sales or financing concession?
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