Which statement best describes what causes the need for a market-conditions (time) adjustment?
Correct Answer
A) Shifts in supply and demand or in inflationary forces over time
Although called a time adjustment, it is not caused by the simple passage of time. Shifting supply and demand and inflationary or deflationary forces create the need. Physical changes and financing are separate elements of comparison.
Why This Is the Correct Answer
Option A is correct because shifting supply and demand and inflationary or deflationary forces create the need for a market-conditions adjustment. Time by itself does not cause price changes; changes in market forces over time do.
Why the Other Options Are Wrong
Option B: The simple passage of time, at a fixed rate for each month
Option B, the simple passage of time at a fixed rate per month, misstates the cause. The need for the adjustment is not caused by time passing, and market changes do not follow a fixed monthly rate.
Option C: Changes in the comparable’s physical condition after it sold
Option C, changes in the comparable's physical condition after it sold, is not a market-conditions issue. Physical condition is a separate element of comparison, measured as of the comparable's sale date.
Option D: Differences in the financing terms between the comparable sales
Option D, differences in financing terms between the sales, is a separate element of comparison. Financing is addressed through cash equivalency, not the market-conditions adjustment.
The market moves, not the clock
Prices change because supply, demand and inflation change, not because the calendar turns.
How to use: Use this when asked what causes a time or market-conditions adjustment.
Exam Tip
The label time adjustment is common, but the cause is changing market forces; answers built on a fixed monthly rate misstate it.
Common Mistakes to Avoid
- -Attributing the adjustment to time passing alone
- -Applying a fixed monthly rate without market support
- -Mixing physical or financing differences into the market-conditions adjustment
Concept Deep Dive
Analysis
This question tests what causes the need for a market-conditions adjustment. Although often called a time adjustment, it is driven by changes in market forces, such as supply and demand or inflation, that occur between the comparable's sale date and the effective date.
Background Knowledge
The market-conditions adjustment accounts for changes in market value between a comparable's sale date and the effective date of the appraisal. Those changes result from shifting economic forces such as supply, demand and inflation. Appraisers support the adjustment with market evidence such as paired sales, resales or trend analysis.
Real-World Application
An appraiser notices that inventory has dropped and prices have risen since a comparable sold nine months ago. Using resale data, the appraiser supports an upward market-conditions adjustment for that comparable.
More Sales Comparison Questions
Supported adjustments are: non-market financing $10,000, GLA $36/sf, garage $3,500 per car, pool/spa $12,500. A comparable identical to the 2,800 sf subject sold for $267,000 with non-market financing. What is its adjusted price?
Using GLA $36/sf and non-market financing $10,000: a 3,100 sf comparable sold for $277,000 with non-market financing; the subject has 2,800 sf. Bath count differences are not adjusted. What is the adjusted price?
Using garage $3,500 per car and pool/spa $12,500: a comparable with a 2-car garage and a pool/spa sold for $268,000. The subject has a 3-car garage and no pool. What is the adjusted price?
Using GLA $36/sf, garage $3,500 per car and pool/spa $12,500: a 2,600 sf comparable with a 2-car garage and a pool/spa sold for $264,000. The subject is 2,800 sf with a 3-car garage and no pool. What is the adjusted price?
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A house is a 4,000 square foot home in an area of 2,000 square foot homes. How must the appraiser treat this over-improvement in the sales comparison grid?
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