Under the federal agencies’ definition of market value, which condition is assumed?
Correct Answer
A) Buyer and seller act prudently and knowledgeably
The agencies’ definition is the most probable price in a competitive and open market under all conditions requisite to a fair sale, with buyer and seller each acting prudently and knowledgeably and the price not affected by undue stimulus. Special financing, forced acceptance and a fixed short sale period are inconsistent with it.
Why This Is the Correct Answer
Option A is correct because the agencies' definition assumes the buyer and seller are each acting prudently and knowledgeably. That condition sits within the definition of the most probable price a property should bring in a competitive and open market under all conditions requisite to a fair sale, with the price not affected by undue stimulus.
Why the Other Options Are Wrong
Option B: The buyer pays with below-market seller financing
Option B is wrong because below-market seller financing is a special financing arrangement that can affect price. The market value definition assumes a fair sale not affected by undue stimulus, which is inconsistent with this kind of special financing.
Option C: The seller must accept the first offer received
Option C is wrong because requiring the seller to accept the first offer received describes a forced or compelled sale. The definition assumes a fair sale in a competitive and open market, not one where the seller is under pressure to take any offer.
Option D: The property sells within 30 days of listing
Option D is wrong because the definition does not assume a sale within 30 days of listing. A fixed, short marketing period like 30 days is inconsistent with a sale under all conditions requisite to a fair sale in an open market.
Fair, open, informed, unpressured
Market value assumes a fair sale in an open market between informed, prudent parties with no undue stimulus pushing the price.
How to use: Use this checklist to eliminate options that add pressure, special terms or a forced deadline.
Exam Tip
Look for the choice that reflects informed, prudent parties; options describing forced acceptance, unusual financing or a fixed short sale period are inconsistent with the definition.
Common Mistakes to Avoid
- -Treating a quick or forced sale price as market value
- -Ignoring the effect of special or below-market financing on price
- -Confusing a fixed marketing deadline with reasonable exposure time
Concept Deep Dive
Analysis
This question tests recall of the conditions built into the federal agencies' definition of market value. The task is to identify which choice matches a stated condition and to reject choices describing special financing, forced sales or fixed marketing periods.
Background Knowledge
The market value definition in the Interagency Appraisal and Evaluation Guidelines describes the most probable price in a competitive and open market, with buyer and seller acting prudently and knowledgeably and the price not affected by undue stimulus. It lists further conditions about typically motivated parties, reasonable exposure time and normal financing terms. These conditions separate market value from forced-sale or special-financing prices.
Real-World Application
A lender orders an appraisal on a home whose contract includes a seller-financed loan at a below-market rate. The appraiser recognizes that market value assumes normal terms without undue stimulus, so the appraiser analyzes whether the financing affected the contract price.
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