In a rapidly appreciating market, a valuer finds comparable sales from 4 months ago averaging $650,000, while more recent sales from 1 month ago average $680,000. For a current valuation, what adjustment approach would be most appropriate?
Correct Answer
B) Adjust the older sales for time to reflect current market levels
In a rapidly appreciating market, applying a time adjustment to older sales is most appropriate as it allows the valuer to use a broader range of comparable data while accounting for market movement. This provides a more reliable valuation than relying solely on limited recent sales or ignoring market appreciation trends entirely.
Why This Is the Correct Answer
The sales suggest prices have risen over three months. Adjusting the older sales for that movement keeps the evidence and brings it to today's level.
Why the Other Options Are Wrong
Option A: Use the older sales unadjusted, since more data is always better
Unadjusted four-month-old sales understate value in a rising market, so more data does not help if it is out of date.
Option C: Average all of the sales together regardless of when they occurred
Averaging across dates blends old and new price levels and hides the market movement.
Option D: Use only last month's sales and discard all the older sales entirely
Discarding good evidence leaves too few sales; adjusting older sales for time is the better practice.
Deep Analysis of This Valuation Question
A time adjustment is supported by evidence of market movement, such as resales of the same property, sales index data, or a clear trend in similar sales. Once adjusted, the older sales add weight to the analysis rather than distorting it.
Background Knowledge for Valuation
Time (market conditions) adjustments bring each comparable to the valuation date. In a rising market they are upward; in a falling market, downward. The size of the adjustment depends on how much the market has moved since each sale.
Memory Technique
Think of a clock running fast in an appreciating market - older sales are like a slow clock that needs to be 'wound forward' to show the current time. Just as you adjust a slow clock to match current time, you must adjust older sales upward to match current market values. The acronym TIME helps: T-ime matters, I-nclude all data, M-ake adjustments, E-nsure current value.
When you see questions about older sales in appreciating markets, visualize winding a slow clock forward. Ask yourself: 'Does this option adjust the old data to current market time?' The correct answer will always involve bringing historical data forward to present market conditions.
Exam Tip for Valuation
In market appreciation questions, look for the option that adjusts older sales upward rather than ignoring them or using them unadjusted. The key phrase is 'time adjustment' - this preserves data while ensuring accuracy.
Real World Application in Valuation
A valuer in a rising Auckland market finds sales of similar homes six months ago at about $800,000 and last month at about $850,000. Resales and index data show prices rising about 1% a month, so the valuer adjusts the older sales upward by about 6%, to roughly $848,000, and uses them alongside the recent sales.
Common Mistakes to Avoid on Valuation Questions
- •Using older sales without any time adjustment in appreciating markets
- •Discarding all older sales data instead of adjusting them
- •Averaging sales from different time periods without considering market movement
Related Topics & Key Terms
Key Terms:
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