For a matched comparable, a supported simple additive market trend is+1% per month over the five months from contract to effective date. What adjustment is omitted if no market-conditions adjustment is made? Express it as a percentage of the unadjusted comparable price.
Correct Answer
A) An upward adjustment of 5% of the unadjusted price
Under the stated simple model the supported upward adjustment is 1%×5=5% of the comparable’s unadjusted price. Omitting it leaves that adjusted-comparable indication too low by that dollar amount; it does not establish a 5% error in the final reconciled appraisal. Relative to a 1.05 adjusted level the shortfall is about 4.76%.
Why This Is the Correct Answer
Option A is correct because a simple trend of +1% per month over 5 months gives 1% × 5 = 5% of the unadjusted comparable price. The market rose after the comparable's contract date, so the adjustment is upward, and omitting it leaves that comparable's indication too low.
Why the Other Options Are Wrong
Option B: A downward adjustment of 5% of that comparable price
Option B, a downward adjustment of 5%, gets the size right but the direction wrong. Prices rose after the contract date, so the comparable must be adjusted upward by 1% × 5 = 5%.
Option C: No adjustment, since a five-month interval is recent
Option C, no adjustment because five months is recent, is wrong because a supported trend calls for an adjustment regardless of how recent the sale seems. Here that adjustment is 1% × 5 months = 5% upward.
Option D: An upward adjustment of 1% in total for the period
Option D, an upward adjustment of 1% in total, applies only one month of the trend. The +1% rate applies for each of the five months, so the total is 1% × 5 = 5%.
Rising market, raise the comp
If prices went up since the comparable sold, bring the comparable up to today's level, by rate times months under a simple model.
How to use: Use this to set both the direction and size of a market-conditions adjustment.
Exam Tip
Check direction first (rising market means upward) and then multiply the monthly rate by the full number of months.
Common Mistakes to Avoid
- -Adjusting downward in a rising market
- -Applying only one month of a monthly trend
- -Skipping a supported time adjustment because the sale seems recent
Concept Deep Dive
Analysis
This question tests applying a supported simple market trend to a comparable sale. A rising market means the comparable's older price understates current conditions, so the adjustment is upward. Under a simple additive model, the monthly rate is multiplied by the number of months elapsed.
Background Knowledge
Comparable sales may require adjustment so they reflect the market conditions on the subject's valuation date. In a rising market, older sales are adjusted upward; in a declining market, downward. Any time adjustment, or the lack of one, should be supported by market evidence.
Real-World Application
An appraiser's paired sales show prices rising about 1% per month. A comparable that went under contract five months before the effective date is adjusted upward by 5% of its sale price, with the supporting data summarized in the report.
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