In the sales comparison approach, a comparable sale that sold 6 months ago for $350,000 requires a time adjustment of +0.5% per month. What is the adjusted sale price?
Correct Answer
B) $360,500
Why this is correct: Time adjustment percentage = 6 months × 0.5% per month = 3.0%. Adjustment amount = $350,000 × 0.03 = $10,500. Adjusted sale price = $350,000 + $10,500 = $360,500. Why the other choices are wrong: $340,750 results from a negative adjustment. $359,250 uses a 2.5% adjustment (e.g., 0.5% for 5 months). $339,500 is a negative 3% adjustment. Exam tip: For positive monthly %, multiply original price by (1 + total % adjustment).
Why This Is the Correct Answer
The calculation requires multiplying 6 months by 0.5% per month to get a total adjustment of 3.0%. Since this is a positive adjustment reflecting market appreciation, we multiply the original price by 1.03 (adding the 3% increase). $350,000 × 1.03 = $360,500. The positive adjustment correctly accounts for the property's increased value due to market appreciation over the 6-month period.
Why the Other Options Are Wrong
Option A: $340,750
This answer of $340,750 incorrectly applies a negative adjustment, subtracting 3% instead of adding it, which would indicate market depreciation rather than the appreciation specified by the positive adjustment rate.
Option C: $359,250
This answer of $359,250 appears to result from an incorrect calculation method, possibly applying the 0.5% monthly rate incorrectly or using simple addition rather than the proper percentage multiplication formula.
Option D: $339,500
This answer of $339,500 also applies a negative adjustment but with an even larger decrease, suggesting both the wrong direction of adjustment and an incorrect calculation method.
TIME+ Formula
T.I.M.E.+ = Time period × Interest rate × Market value × Equals adjusted price (+). Remember: Positive adjustments mean 'multiply by 1.XX' where XX is the percentage increase.
How to use: When you see a time adjustment problem, identify the TIME+ components: count the months, note the monthly rate, multiply them together for total adjustment, then multiply the original price by (1 + adjustment percentage) for positive adjustments.
Exam Tip
Always double-check whether the adjustment should be positive or negative - positive adjustments use (1 + percentage) as the multiplier, while negative adjustments use (1 - percentage).
Common Mistakes to Avoid
- -Applying the adjustment in the wrong direction (subtracting instead of adding)
- -Forgetting to convert the monthly rate to a total adjustment period
- -Using simple addition/subtraction instead of percentage multiplication
Concept Deep Dive
Analysis
Time adjustments in the sales comparison approach account for market changes between the date of a comparable sale and the effective date of the appraisal. When markets are appreciating, comparable sales that occurred in the past require positive adjustments to reflect current market conditions. The adjustment is calculated by multiplying the time period by the monthly appreciation rate, then applying this percentage to the original sale price. This ensures that older sales data is brought forward to reflect what the property would likely sell for in today's market.
Background Knowledge
Time adjustments are essential in the sales comparison approach because real estate markets are dynamic and property values change over time due to economic conditions, supply and demand, and other market factors. Appraisers must adjust comparable sales to reflect market conditions as of the effective date of the appraisal, not the date when the comparable property sold.
Real-World Application
In practice, appraisers research market trends and may use MLS data, assessment records, or market studies to determine appropriate time adjustment rates, which can vary significantly based on local market conditions and property types.
More Sales Comparison Questions
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A property has potential gross income of $180,000, vacancy and collection loss of $15,000, and operating expenses of $65,000. What is the Net Operating Income?
A comparable sale occurred 8 months ago for $425,000. Market conditions indicate property values have increased 0.5% per month since that time. What is the adjusted sale price?
A property generates $150,000 in potential gross income. Market data indicates a 7% vacancy rate and operating expenses of 35% of effective gross income. If the cap rate is 9.5%, what is the indicated value?
A property sold for $320,000 one year ago. If market conditions have improved by 6% since that sale, what is the time-adjusted sale price for comparison purposes?
A commercial building cost $2,500,000 to construct. The land value is $600,000. If the building has suffered 15% physical deterioration and 8% functional obsolescence, what is the depreciated cost of the improvements?
A building's gross rent multiplier (GRM) is 120. If the monthly rent is $2,500, what is the indicated value?
In the cost approach, economic obsolescence is characterized as:
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A commercial property has potential gross income of $120,000, vacancy and collection loss of 8%, and operating expenses of $35,000. Using a cap rate of 9.5%, what is the indicated value?
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