Two sales matched in features and terms sold for $400,000 exactly eight months before the effective date and $424,000 at the effective date. Market prices are changing at a constant simple monthly rate, without compounding. What is the monthly rate, and what is the adjusted price of a matched third comparable that contracted six months before the effective date at $450,000?
Correct Answer
A) +0.75% per month; adjusted price $470,250
The pair indicates (424,000 − 400,000)/400,000 = 6% over eight months. Simple monthly rate = 6%/8 = 0.75%. Apply six months to the third sale: $450,000 × (1 + 0.0075 × 6) = $470,250. Common errors: applying the full eight-month 6% change gives $477,000; leaving the price unadjusted gives $450,000; treating 6% as a monthly rate gives $612,000.
Why This Is the Correct Answer
Option A is correct because (424,000 - 400,000) / 400,000 = 6% over eight months, and 6% / 8 = 0.75% per month. Applying six months to the third sale gives $450,000 x (1 + 0.0075 x 6) = $450,000 x 1.045 = $470,250.
Why the Other Options Are Wrong
Option B: +0.75% per month; adjusted price $477,000
Option B shows the correct +0.75%/month rate but an adjusted price of $477,000, which comes from applying the full eight-month 6% change: $450,000 x 1.06 = $477,000. The third sale is only six months old, so the correct result is $450,000 x 1.045 = $470,250.
Option C: +6% per month; adjusted price $612,000
Option C, +6%/month with $612,000, treats the eight-month 6% change as a monthly rate: $450,000 x (1 + 0.06 x 6) = $450,000 x 1.36 = $612,000. The correct monthly rate is 6% / 8 = 0.75%, giving $470,250.
Option D: +0.75% per month; adjusted price $450,000
Option D shows the correct +0.75%/month rate but leaves the price unadjusted at $450,000. The six-month market change of 0.75% x 6 = 4.5% must be applied, giving $470,250.
Rate per month, then months
First divide the pair's total change by its months, then multiply by the comparable's own months.
How to use: Use this whenever a trend is extracted over one interval and applied to a comparable with a different interval.
Exam Tip
Check that the months applied match the comparable's contract date, not the length of the pair used to derive the rate.
Common Mistakes to Avoid
- -Applying the full pair change to a comparable with a shorter interval
- -Treating a multi-month change as a monthly rate
- -Forgetting to adjust the comparable at all
Concept Deep Dive
Analysis
This question tests extracting a monthly market-conditions rate from a matched pair and applying it to a different time interval. The pair shows a 6% change over eight months, which is 0.75% per month under a simple additive trend. The third sale contracted six months earlier, so it receives 4.5%, not the full 6%.
Background Knowledge
Paired sales of the same or matched properties at different dates can indicate a market-conditions trend. Under simple interest logic, the rate applies only to the original amount, so the total change is the monthly rate times the number of months. Time adjustments must be supported by evidence.
Real-World Application
An appraiser finds a home that sold twice, eight months apart, with a 6% increase and no changes. Using 0.75% per month, the appraiser adjusts a comparable that sold six months ago by 4.5%. The report explains the paired-sale support.
More Market Questions
In market area analysis, what characteristic distinguishes a district from a neighborhood?
Under USPAP Standards Rule 1-3(a), which item must an appraiser identify and analyze when necessary for credible results in a market value assignment?
How does the Fannie Mae Selling Guide define a neighborhood?
Several homes in a neighborhood are vacant and boarded up. Which market force does Fannie Mae classify this as?
Infrastructure investment such as a new interchange typically affects nearby land by:
A city raises property tax rates and tightens building regulations. Which market force does Fannie Mae classify these as?
An appraiser believes, without market evidence, that a nearby group home lowers values. What does Fannie Mae require?
Which three categories are used to report the supply of properties in a Fannie Mae neighborhood section?
An appraiser is asked for a retrospective value opinion as of three years ago. When must the appraiser meet the Competency Rule?
Can mixed land uses in a residential neighborhood ever enhance home values, according to Fannie Mae?
People Also Study
Property Description
11.8% of exam
Land or Site Valuation
4.5% of exam
Sales Comparison Approach
16.4% of exam
Cost Approach
13.6% of exam
Income Approach
8.2% of exam
Previous Question
Which set describes economic conditions supporting value in real estate?
Next Question
Use a supported simple additive market trend of+0.80% per month, without compounding. A comparable contracted seven months before the effective date for a cash-equivalent $415,000; no other adjustments apply. What adjusted price results?