In a market-value Appraisal Report, a verified subject sale eighteen months before the effective date is far below the current opinion. What should the appraiser do?
Correct Answer
B) Analyze and report the prior sale and explain how it relates to value
In this market-value Appraisal Report, analyze the normally available subject sale eighteen months before the effective date and explain its relevance to the present opinion. Investigate market changes, property changes and sale terms rather than force the opinion to the former price or omit the history.
Why This Is the Correct Answer
Option B is correct because SR 1-5(b) requires the appraiser to analyze all sales and other transfers of the subject within the three years before the effective date, and the Appraisal Report must summarize the results of that analysis. The appraiser should investigate market changes, property changes and sale terms and explain how the earlier sale relates to the current opinion.
Why the Other Options Are Wrong
Option A: Omit the prior sale because its price differs from the current opinion
Option A omits the prior sale because its price differs from the current opinion. A sale within three years must be analyzed, and a price difference is a reason to explain it, not to leave it out.
Option C: Set the value equal to the subject’s prior sale price
Option C sets value equal to the prior sale price. A sale eighteen months earlier reflects past market conditions and terms, so the opinion should not be forced to the former price without analysis.
Option D: Leave the sale out unless the client requests sales history
Option D leaves the sale out unless the client requests sales history. The duty to analyze subject sales within the three-year window does not depend on a client request.
Three-year look back
For market value, look back three years at the subject's own sales and transfers and explain them.
How to use: Use this when a question mentions a prior sale of the subject within the past three years.
Exam Tip
When a subject sale falls within three years of the effective date, choose the answer that analyzes and reports it.
Common Mistakes to Avoid
- -Ignoring a prior subject sale because it conflicts with the opinion
- -Assuming the prior sale price sets current value
- -Reporting the prior sale without analyzing it
Concept Deep Dive
Analysis
This question tests the requirement to analyze and report prior sales of the subject. For a market-value appraisal, SR 1-5(b) requires analysis of all sales and transfers of the subject within three years prior to the effective date. A sale eighteen months earlier falls in that window and must be analyzed and explained.
Background Knowledge
Prior sales of the subject can reveal market trends, changes to the property or unusual sale conditions. Analyzing and reporting them helps users understand why the current opinion differs from earlier prices.
Real-World Application
A home sold eighteen months ago at a low price as a distressed property and has since been fully renovated. The appraiser reports that prior sale and explains that the renovation and market appreciation account for the higher current value.
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Within the sales comparison approach, three comparables adjust to $431,000, $420,000 and $412,000, with gross adjustments of 5%, 10% and 20% of sale price respectively. The appraiser weights each sale in proportion to the inverse of its gross adjustment percentage (1/5, 1/10 and 1/20), then scales the weights to total 100%. What is the indicated value, rounded to the nearest dollar?