In the usual sequence of adjustments, why is the market conditions adjustment applied after property rights, financing and non-realty adjustments?
Correct Answer
C) Because time adjustments are derived from prices without those items
Adjusting first for property rights, cash equivalence and non-realty items gives a price reflecting real property on comparable terms, which is the appropriate base for the market conditions adjustment, typically derived without those items.
Why This Is the Correct Answer
Option C is correct because adjusting first for property rights, cash equivalence and non-real property items yields a price reflecting the real property on comparable terms. The market conditions adjustment is typically derived without reflecting those items, so this normalized price is the appropriate base for it. Applying the time adjustment earlier would mix it with transaction effects it was not measured from.
Why the Other Options Are Wrong
Option A: Because market conditions produce the largest adjustment in each grid
Option A is wrong because market conditions do not necessarily produce the largest adjustment in each grid. The sequence is based on which price is the proper base, not on adjustment size.
Option B: Because percentage adjustments must come before dollar adjustments
Option B is wrong because there is no rule that percentage adjustments must come before dollar adjustments. The order reflects the need to apply the time adjustment to a normalized price.
Option D: Because lenders require it to be the final line of the sales grid
Option D is wrong because the sequence is not driven by a lender requirement that market conditions be the final grid line. The reason is analytical: time adjustments are derived from prices without the transaction items.
Clean the deal, then date it
First clean the deal of rights, financing and personal property effects, then adjust it for date. Time trends are measured on clean prices.
How to use: Use this phrase to recall why market conditions follow the transaction adjustments.
Exam Tip
When asked why adjustments follow a sequence, choose the answer about the proper base price rather than size, format or lender preference.
Common Mistakes to Avoid
- -Applying the time adjustment to a price still containing personal property
- -Thinking the sequence is based on adjustment size
- -Believing the order is only a lender formatting preference
Concept Deep Dive
Analysis
This question tests the logic behind the sequence of adjustments. Property rights, financing (cash equivalence) and non-realty items are adjusted first so the price reflects real property on comparable terms. The market conditions adjustment is then applied to that base because it is typically derived from prices that do not reflect those items.
Background Knowledge
The usual sequence of adjustments handles transaction elements first, such as property rights, financing, conditions of sale and expenditures after sale, then market conditions, then property characteristics. Each adjustment should be applied to the price that matches how it was derived. Following the sequence avoids distortion when percentage adjustments are used.
Real-World Application
A comparable included furniture and seller financing and sold a year ago. The appraiser first removes the furniture value and the financing effect, then applies the time adjustment derived from cash sales of real property only.
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?
People Also Study
Real Estate Market
13.6% of exam
Property Description
11.8% of exam
Land or Site Valuation
4.5% of exam
Cost Approach
13.6% of exam
Income Approach
8.2% of exam
Previous Question
For which grid line items does Fannie Mae especially expect fact-based comments on the work and data sources behind the adjustments?
Next Question
A regression of sale price on gross living area for 60 recent sales of tract homes in one subdivision has a coefficient of determination (R-squared) of 0.78. What does this figure indicate?