Market data show prices rising at a simple rate of 2% per month, without compounding. A cash-equivalent comparable sold for $475,000 three months before the effective date, and all other relevant factors match the subject. What is the time-adjusted price of the comparable?
Correct Answer
D) $503,500
Simple adjustment factor=1+0.02×3=1.06; adjusted comparable=$475,000×1.06=$503,500. Use the same population, period and price/listing definition throughout. Common errors: applying only one month of the trend gives $484,500; adjusting downward instead of upward gives $446,500; dividing by 1.06 instead of multiplying gives $448,113.
Why This Is the Correct Answer
Option D is correct because the simple adjustment factor is 1 + 0.02 x 3 = 1.06. Multiplying the sale price by this factor gives $475,000 x 1.06 = $503,500. The adjustment is upward because prices rose between the comparable's sale and the effective date.
Why the Other Options Are Wrong
Option A: $446,500
Option A, $446,500, results from adjusting downward instead of upward: $475,000 x (1 - 0.02 x 3) = $446,500. In a rising market the earlier sale must be increased, giving $475,000 x 1.06 = $503,500.
Option B: $448,113
Option B, $448,113, results from dividing by the factor instead of multiplying: $475,000 / 1.06 = $448,113. The correct calculation multiplies, $475,000 x 1.06 = $503,500.
Option C: $484,500
Option C, $484,500, applies only one month of the trend: $475,000 x 1.02 = $484,500. The sale occurred three months earlier, so the factor is 1 + 0.02 x 3 = 1.06, giving $503,500.
Rising market, raise the comp
If prices went up after the comp sold, the comp is too cheap for today and must be raised. Simple model: rate times months, plus one, times price.
How to use: Use this to check the direction and the factor before picking a time-adjusted figure.
Exam Tip
Confirm whether the question specifies simple or compound growth, and count the months carefully. Distractors often use one month, the wrong direction or division instead of multiplication.
Common Mistakes to Avoid
- -Adjusting a comparable downward in a rising market
- -Applying only one month of the trend
- -Dividing by the adjustment factor instead of multiplying
Concept Deep Dive
Analysis
This question tests a simple (non-compounded) market-conditions adjustment. The trend is positive, so a comparable that sold three months before the effective date must be adjusted upward. Under the simple model, the monthly rate is multiplied by the number of months and added to 1.
Background Knowledge
A market-conditions (time) adjustment brings a comparable's price from its sale date to the effective date. Under simple growth, the change is earned only on the original amount, so monthly rates are added rather than compounded. Any time adjustment, or the lack of one, must be supported by market evidence.
Real-World Application
An appraiser finds paired sales and resales showing about 2% monthly appreciation in a neighborhood. A comparable that closed three months ago is adjusted upward so it reflects market conditions as of the effective date, and the support is documented in the report.
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