Sales data lagging the market is a problem because closed sales reflect:
Correct Answer
A) Negotiations that occurred weeks or months earlier
Closed sales often reflect prices negotiated before closing. In a changing market, investigate the contract date and relevant subsequent market evidence. Verified pending and listing information can supplement closed sales; an appraisal is an opinion of value, not a price-setting act.
Why This Is the Correct Answer
Option A is correct because closed sales reflect negotiations that took place weeks or months earlier, when the contract was signed. If prices have moved since then, the closed price describes earlier conditions. That is why appraisers check contract dates and supplement closed sales with pending sales and listings.
Why the Other Options Are Wrong
Option B: Prices set by the appraiser rather than the market
Option B says closed sales reflect prices set by the appraiser rather than the market. Sale prices are set by buyers and sellers; an appraisal is an opinion of value, not a price-setting act.
Option C: Only the highest offers received on each property
Option C says closed sales reflect only the highest offers received on each property. A sale reflects the accepted contract terms, which are not necessarily the highest offer, and that does not explain the time lag.
Option D: Conditions that will exist in the coming quarter
Option D says closed sales reflect conditions that will exist in the coming quarter. Closed sales are historical evidence and look backward, not forward.
Closed Price, Older Handshake
The closing date is when the deal finishes, but the price was settled at the earlier handshake when the contract was signed.
How to use: Use this to remember to check the contract date when judging whether a sale needs a market conditions adjustment.
Exam Tip
When a question asks why closed sales lag, look for the answer about the time gap between contract and closing.
Common Mistakes to Avoid
- -Using only the closing date and ignoring the contract date
- -Ignoring pending sales and listings in a changing market
- -Assuming closed prices reflect current conditions in every market
Concept Deep Dive
Analysis
This question tests why closed sales can lag current market conditions. A closed sale reflects a price that buyer and seller agreed on at contract, often weeks or months before closing. In a changing market, that delay means closed sales may not reflect conditions on the effective date.
Background Knowledge
Comparable sales that occurred under different market conditions may require adjustment so they reflect conditions as of the effective date. Fannie Mae directs lenders to confirm appraisers analyze listings and contract sales as well as closed sales. Pending sales and current listings help show where the market is moving.
Real-World Application
In a quickly rising market, an appraiser notices a comparable closed this month but went under contract three months ago. Pending sales show higher prices since then, so the appraiser considers a market conditions adjustment.
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