In the sales comparison approach, which adjustment sequence is generally preferred?
Correct Answer
A) Property rights, financing terms, conditions of sale, market conditions, location, physical characteristics
The preferred adjustment sequence starts with transactional adjustments (property rights, financing terms, conditions of sale, market conditions) followed by property adjustments (location, physical characteristics). This sequence ensures that market-oriented adjustments are made before property-specific adjustments.
Why This Is the Correct Answer
Option A follows the correct hierarchy by starting with transactional adjustments (property rights, financing terms, conditions of sale, market conditions) before moving to property adjustments (location, physical characteristics). This sequence ensures that broad market factors affecting the sale are addressed first, creating a proper foundation for subsequent property-specific adjustments. The logic is that sale-related conditions impact the entire transaction value, while location and physical features are inherent property characteristics that should be adjusted after normalizing for market conditions.
Why the Other Options Are Wrong
Option B: Location, physical characteristics, market conditions, financing terms, conditions of sale, property rights
This sequence incorrectly starts with property adjustments (location, physical characteristics) before addressing transactional adjustments, which can lead to compounding errors and inaccurate valuations since market conditions haven't been normalized first.
Option C: Market conditions, location, physical characteristics, financing terms, conditions of sale, property rights
While this sequence correctly identifies market conditions as important, it places them before other transactional adjustments like property rights, financing terms, and conditions of sale, which should typically be addressed in the established hierarchy.
Option D: Physical characteristics, location, market conditions, property rights, financing terms, conditions of sale
This sequence incorrectly prioritizes physical characteristics first, which are property-specific adjustments that should come after transactional adjustments have normalized the comparable sales for market conditions.
PRFC-LP Method
Remember 'PRFC-LP': Property Rights, Financing, Conditions, Market (time), Location, Physical. Think 'Perfect Financing Conditions Make Location Perfect' - transactional elements first, then property elements.
How to use: When you see adjustment sequence questions, immediately think PRFC-LP and look for the option that follows this transactional-to-property flow, ensuring market-related adjustments come before property-specific ones.
Exam Tip
Look for answer choices that group transactional adjustments (property rights, financing, conditions, market conditions) before property adjustments (location, physical characteristics) - this fundamental principle eliminates wrong answers quickly.
Common Mistakes to Avoid
- -Starting with physical characteristics before normalizing market conditions
- -Mixing transactional and property adjustments randomly without following the hierarchy
- -Placing market conditions (time adjustments) after location or physical adjustments
Concept Deep Dive
Analysis
The sales comparison approach requires a systematic adjustment sequence to ensure accurate valuation. The sequence follows a logical hierarchy where transactional adjustments (those related to the sale itself) are made first, followed by property-specific adjustments. This order prevents compounding errors and ensures that market-driven factors are addressed before physical property characteristics. The sequence reflects the principle that sale conditions and market factors affect the entire transaction, while location and physical features are property-specific attributes that should be adjusted after establishing the baseline market conditions.
Background Knowledge
The sales comparison approach uses comparable sales to estimate value, requiring systematic adjustments to account for differences between the subject property and comparables. Adjustments are categorized into transactional adjustments (related to the sale circumstances) and property adjustments (related to physical and locational differences).
Real-World Application
When appraising a home, an appraiser first adjusts comparable sales for any special financing terms or unusual sale conditions, then adjusts for time/market changes, and finally adjusts for differences in location and physical features like square footage or amenities.
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