Under the federal agencies' definition of market value, the price represents the normal consideration for the property sold, unaffected by which of the following?
Correct Answer
B) Special or creative financing or concessions
The agencies' market value definition assumes the price represents normal consideration unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. Seasonal activity and interest-rate changes are market conditions that market value reflects, not conditions it excludes. Exposure time is part of the definition: it assumes a reasonable time is allowed for exposure in the open market.
Why This Is the Correct Answer
Option B is correct because the agencies' definition states that the price represents normal consideration unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. Those items can push a price above what the property alone would bring.
Why the Other Options Are Wrong
Option A: Seasonal swings in local sales activity
Option A names seasonal swings in sales activity. Market value is set as of a specific date under the market conditions then in place, and seasonal activity is one of those conditions rather than something the definition excludes.
Option C: Changes in mortgage interest rates
Option C names changes in mortgage interest rates. Interest rates are an economic force that affects demand and value, and market value reflects the rates prevailing on the effective date.
Option D: The length of time the property was exposed for sale
Option D names the length of time the property was exposed for sale. The definition assumes a reasonable time is allowed for exposure in the open market, so exposure is part of the definition, not something the price is free of.
Clean price, cash terms
Market value is a clean price on cash or cash-like terms. Anything that sweetens the deal, such as creative financing or concessions, is stripped out.
How to use: Use this to spot which answer names something the market value definition removes from the price.
Exam Tip
Separate the definition's conditions (exposure, motivation, cash terms) from the market forces it reflects (rates, seasons, trends).
Common Mistakes to Avoid
- -Thinking market value excludes the effect of current interest rates
- -Treating reasonable exposure time as something the definition removes
Concept Deep Dive
Analysis
This question asks you to recall one condition built into the agencies' market value definition. The definition removes the effect of special or creative financing and sales concessions so the price reflects the property itself. The distractors name market conditions or definition elements that market value includes rather than excludes.
Background Knowledge
The federal agencies define market value as the most probable price a property should bring in a competitive and open market under all conditions requisite to a fair sale. Its listed conditions include typically motivated parties, well-informed parties, reasonable exposure time, payment in cash or comparable terms, and a price unaffected by special financing or concessions.
Real-World Application
A lender's reviewer finds that an appraiser relied on builder sales with large rate buydowns and made no adjustments. The reviewer asks for revisions because the agencies' definition requires a price unaffected by such financing concessions.
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