In the conventional sequence of sales adjustments, why is a financing (cash-equivalency) adjustment usually made before the market-conditions adjustment?
Correct Answer
A) The market-conditions rate is meant to apply to a cash-equivalent price.
Transactional adjustments (property rights, financing terms, conditions of sale, expenditures right after purchase) come first so that the market-conditions adjustment is applied to a normalized, cash-equivalent price. When a percentage adjustment and a dollar adjustment are combined, the order changes the result, so the sequence must match how the rates were derived. Financing and time are different effects, and physical adjustments follow the transactional ones.
Why This Is the Correct Answer
Option A is correct because the market-conditions rate is meant to apply to a cash-equivalent price. Transactional adjustments such as property rights, financing terms, conditions of sale and expenditures right after purchase come first to normalize the price. When percentage and dollar adjustments are combined, the order changes the result, so the sequence should match how the rates were derived.
Why the Other Options Are Wrong
Option B: Financing adjustments are not allowed once time has been analyzed.
Option B says financing adjustments are not allowed once time has been analyzed. There is no such prohibition; the reason for the order is that the time rate should apply to a cash-equivalent price.
Option C: Physical differences must be adjusted before any transaction terms.
Option C says physical differences must be adjusted before transaction terms. This reverses the conventional sequence, in which transactional adjustments come first and physical adjustments follow.
Option D: Financing and market conditions measure the same price effect.
Option D says financing and market conditions measure the same price effect. They are different effects: financing reflects the terms of the sale, while market conditions reflect changes in value over time.
Clean the price first
Strip out deal-specific terms to reach a cash-equivalent price before adjusting for time.
How to use: Use this when asked why transactional adjustments precede market conditions.
Exam Tip
Remember the general order: transactional adjustments, then market conditions, then location and physical characteristics.
Common Mistakes to Avoid
- -Applying the time adjustment before converting to cash equivalent
- -Adjusting physical features before transactional items
- -Treating financing and time as the same effect
Concept Deep Dive
Analysis
This question tests the conventional sequence of adjustments. Transactional adjustments come before the market-conditions adjustment so that the time rate is applied to a normalized price. Reason through why a market-conditions rate should operate on a cash-equivalent figure.
Background Knowledge
The conventional sequence begins with property rights, financing terms, conditions of sale and expenditures right after purchase, followed by market conditions, then location and physical characteristics. Normalizing the price first ensures later percentage adjustments are applied to a comparable base. The order matters most when percentage and dollar adjustments are mixed.
Real-World Application
A comparable sold with below-market seller financing a year ago. The appraiser first adjusts the price to its cash equivalent, then applies the supported monthly market-conditions rate to that cash-equivalent figure.
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?
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