Two otherwise identical houses in one subdivision sold at different times. House A (no garage) sold 10 months before the effective date for $400,000. House B, which has a garage that market evidence shows contributes $12,000, sold 4 months before the effective date for $426,000. Using a simple (not compounded) rate based on House A's price, what monthly market-conditions rate does this pair indicate? Round to two decimals.
Correct Answer
A) 0.58% per month
First remove the one physical difference so only time remains: $426,000 - $12,000 = $414,000. The change is $14,000 over the 6 months between the sales (10 - 4), or 3.5% of $400,000, which is about 0.58% per month. The higher figures come from ignoring the garage, adding the garage value instead of subtracting it, or dividing by B's 4-month age rather than the 6-month gap.
Why This Is the Correct Answer
Option A is correct because removing the garage's $12,000 contribution leaves $414,000 for House B, a $14,000 increase over House A's $400,000. That is 3.5% over the 6-month gap between the sales, or about 0.58% per month on a simple basis.
Why the Other Options Are Wrong
Option B: 0.88% per month
Option B, 0.88% per month, divides the 3.5% change by 4 months, which is House B's age from the effective date. The price change occurred between the two sales, 10 - 4 = 6 months apart, so 3.5% / 6 = 0.58% per month.
Option C: 1.08% per month
Option C, 1.08% per month, leaves the garage in: (426,000 - 400,000) / 400,000 = 6.5%, divided by 6 months. Part of that $26,000 difference is the garage, not market change; removing $12,000 gives 3.5% / 6 = 0.58%.
Option D: 1.58% per month
Option D, 1.58% per month, adds the $12,000 garage to House B's price: (438,000 - 400,000) / 400,000 = 9.5%, divided by 6. House B is the superior property, so its price must be reduced, giving 0.58% per month.
Strip features, then measure time
Make the later sale look like the earlier one first, then divide the price change by the months between the two sales.
How to use: Use this on any paired-sales time question where the two properties are not exactly identical.
Exam Tip
Identify which house is superior and adjust its price toward the other before calculating. Then check that the time interval is sale date to sale date.
Common Mistakes to Avoid
- -Calculating the time rate before removing the feature difference
- -Adjusting the superior sale upward instead of downward
- -Using a sale's distance from the effective date as the interval between the pair
Concept Deep Dive
Analysis
A paired-sales time analysis works only when every difference except the date has been removed. Here House B has a garage, so its price must first be adjusted down to what it would have been without one. The time interval is the gap between the two sale dates, not either sale's distance from the effective date.
Background Knowledge
Market-conditions adjustments can be measured from separate but very similar properties that sell at different times, and Fannie Mae recognizes paired sales as one acceptable method. The pair must first be made equal in all other respects, using supported adjustments, so the remaining price difference reflects market change.
Real-World Application
In a subdivision with few exact matches, an appraiser pairs a resale of a model without a garage with a later sale of the same model with a garage. Using a garage contribution supported elsewhere in the market, the appraiser isolates a monthly time trend to apply to older comparables.
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