Two land sales are identical except that one was a forced sale by a lender. How should this be handled?
Correct Answer
C) Adjust for conditions of sale or exclude the sale
Verify the actual duress and sale conditions. If a supported price effect can be measured and the sale remains useful, address it; otherwise give it no weight as a market-value comparable. Lender ownership alone would not establish duress, and the sale does not set a universal price floor.
Why This Is the Correct Answer
Option C is correct because a sale made under duress does not reflect typical market motivations. If the price effect can be measured with support and the sale remains useful, it can be adjusted for conditions of sale; otherwise it should be given no weight as a market value comparable. The appraiser should first verify that actual duress existed.
Why the Other Options Are Wrong
Option A: Average the two prices to reach a market figure
Option A suggests averaging the two prices to reach a market figure. Averaging blends an atypical price into the result without measuring the effect of the sale conditions, so it does not produce a supported market indication.
Option B: Use the forced sale, which shows the true floor
Option B says to use the forced sale because it shows the true floor. A forced sale does not set a universal price floor and does not represent market value conditions, so relying on it alone would misstate value.
Option D: Use both without adjustment, as both are sales
Option D says to use both without adjustment because both are sales. Being a recorded sale does not make a transaction a valid market value comparable; atypical conditions of sale must be addressed or the sale excluded.
Verify, adjust, or exclude
For a distressed sale: verify the duress, adjust if the effect is measurable, exclude if not.
How to use: Use this sequence whenever a comparable may involve unusual sale conditions.
Exam Tip
Lender ownership alone does not prove duress; look for an answer that addresses conditions of sale with support rather than one that averages or ignores the issue.
Common Mistakes to Avoid
- -Averaging a distressed sale with a market sale
- -Treating a forced sale as the market floor
- -Assuming any lender-owned sale is automatically a distressed sale
Concept Deep Dive
Analysis
This question tests how to treat a sale that does not meet market value conditions. A forced sale by a lender may reflect duress, which is a conditions-of-sale issue. The appraiser should verify the circumstances and either make a supported conditions-of-sale adjustment or exclude the sale.
Background Knowledge
Market value assumes typically motivated, informed parties acting without undue stimulus. Conditions of sale such as duress, related parties or forced liquidation can push a price away from market value. Appraisers verify these conditions and adjust only when the effect can be supported.
Real-World Application
An appraiser finds two nearly identical lots, one sold by a bank that needed a quick disposition. After confirming the short marketing time and seller pressure, she lacks data to measure the discount reliably, so she excludes the bank sale and explains why in the report.
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