Under the common federal mortgage-lending definition of market value, which of the following is NOT assumed?
Correct Answer
C) The sale is guaranteed to close within 30 days
The federal banking-agency market-value definition includes a competitive open market, knowledgeable and typically motivated parties, and reasonable exposure time. It does not guarantee closing within 30 days. USPAP requires an appraiser to identify and cite the definition used; USPAP does not prescribe one universal market-value definition.
Why This Is the Correct Answer
Option C is correct because the federal market-value definition does not assume that a sale will close within 30 days. The definition describes the most probable price in a competitive and open market under conditions requisite to a fair sale, with knowledgeable, prudent, typically motivated parties and reasonable exposure time. A fixed closing deadline is not one of its conditions.
Why the Other Options Are Wrong
Option A: Both parties are well informed or well advised
Option A, both parties are well informed or well advised, is part of the definition, which assumes the buyer and seller act prudently and knowledgeably.
Option B: The property has had reasonable time on the open market
Option B, the property has had reasonable time on the open market, is part of the definition's conditions, so it is assumed and is not the exception.
Option D: Buyer and seller are typically motivated
Option D, buyer and seller are typically motivated, is one of the definition's stated conditions, so it is assumed.
Fair sale, no deadline
Market value assumes a fair, open, informed sale after reasonable exposure, not a rushed closing on a set date.
How to use: Use this on except questions about the market-value definition's assumptions.
Exam Tip
Exposure time is part of the definition, but a fixed closing date is not.
Common Mistakes to Avoid
- -Treating a fixed closing date as part of market value
- -Confusing exposure time with marketing or closing time
- -Thinking USPAP supplies the market-value definition
Concept Deep Dive
Analysis
This question tests the elements of the federal banking agencies' market-value definition. That definition assumes a competitive and open market, buyer and seller acting prudently and knowledgeably, typical motivation, and reasonable exposure time. It does not assume any particular closing deadline.
Background Knowledge
The federal banking agencies' market-value definition is widely used in mortgage lending appraisals. It includes conditions about market competition, informed parties, typical motivation, exposure time, cash or equivalent payment, and normal financing terms. USPAP requires identifying and citing whichever definition applies.
Real-World Application
A lender orders a market-value appraisal for a refinance. The appraiser cites the federal market-value definition, which assumes reasonable exposure and informed, typically motivated parties, without any assumed closing date.
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