To measure the change in market conditions in a neighborhood of townhouses, an appraiser reviews units that sold twice during the past two years. Which pair of sales best isolates the effect of time?
Correct Answer
B) A unit resold unchanged in two arm's-length sales
A sale-resale pair isolates market conditions when the same property sold twice with no significant change to the property and both sales were typical, arm's-length transactions; the price difference then reflects time alone. A finished basement adds a physical change, a lender-owned sale adds a conditions-of-sale difference, and a sale to a relative is not arm's length, so each mixes another factor into the price change.
Why This Is the Correct Answer
Option B is correct because the unit was unchanged between sales and both transactions were arm's length. With property and conditions of sale held constant, the price difference measures the change in market conditions.
Why the Other Options Are Wrong
Option A: A unit resold after its owner finished the basement
Option A involves a unit resold after the basement was finished. The second price reflects both time and the added finish, so the pair cannot isolate market change without first adjusting for the improvement.
Option C: A unit bought from a lender after foreclosure, then resold
Option C pairs a purchase from a lender after foreclosure with a later resale. Lender-owned sales often occur under different conditions of sale, so the gap between the two prices may reflect the sale conditions as well as time.
Option D: A unit resold by its owner to the owner's daughter
Option D involves a resale to the owner's daughter. A sale between relatives is not an arm's-length transaction, and its price may not reflect market value.
Same house, same terms, different date
A good resale pair differs in date only: the same house, unchanged, sold twice on typical terms.
How to use: Use this when choosing which repeat sales can support a market conditions rate.
Exam Tip
Eliminate any pair with a remodel, an addition, a distressed sale or a related-party sale; the clean pair is the answer.
Common Mistakes to Avoid
- -Using a resale after an improvement without adjusting for it
- -Including distressed or related-party sales in a resale analysis
- -Assuming any repeat sale measures time
Concept Deep Dive
Analysis
The question tests the conditions that make a sale-resale pair valid for a time adjustment. The pair works only when time is the one element that differs between the two sales.
Background Knowledge
Sale-resale (paired resale) analysis measures market conditions by comparing two sales of the same property. It is valid when no significant change occurred in the property between sales and both sales reflect typical market terms; the percentage change divided by months elapsed gives a monthly rate.
Real-World Application
An appraiser searching a townhouse complex finds four units that sold twice. She drops one that was renovated and one sold to a family member, and uses the unchanged arm's-length resales to measure the monthly change.
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?
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