When conducting a sales comparison analysis, which adjustment would be most appropriate for a property sold 18 months ago in a rising market?
Correct Answer
B) Adjust the comparable's sale price upward
In a rising market, a comparable sale from 18 months ago would need to be adjusted upward to reflect current market conditions. This time adjustment accounts for market appreciation since the sale occurred.
Why This Is the Correct Answer
Prices have risen since the sale, so the comparable's price is adjusted upward to bring it to current market levels.
Why the Other Options Are Wrong
Option A: Adjust the comparable's sale price downward
A downward adjustment would suit a falling market; in a rising market the old price understates today's value.
Option C: Make no adjustment for the passage of time
Eighteen months of rising prices is a material change that must be allowed for.
Option D: Exclude the sale as too old to be relevant
Older sales can still be used once adjusted for time, especially where recent evidence is thin.
Deep Analysis of This Valuation Question
An 18-month-old sale is usable, but the adjustment is larger and less certain than for a recent sale, so the valuer gives it less weight than newer evidence. The direction of the adjustment always follows the market: up in a rising market, down in a falling one.
Background Knowledge for Valuation
Time adjustments are supported by evidence such as resales of the same property, sales price indices, or trends in similar sales over the period. The adjustment is applied to the comparable's price, not to the subject.
Memory Technique
Think of time adjustments like time travel - if you could travel back 18 months to buy that property at the old price, you'd need to 'pay extra' (adjust upward) to bring it to today's rising market value. Rising market = Rise the price up!
When you see time adjustment questions, immediately identify if the market is rising or falling, then remember: Rising markets need upward adjustments to 'catch up' older sales to current values.
Exam Tip for Valuation
Quickly identify market direction first - rising markets always require upward time adjustments for older sales. The longer the time period, the larger the adjustment needed.
Real World Application in Valuation
A real estate agent is preparing a market appraisal for a client's property. They find an excellent comparable sale from 18 months ago that sold for $650,000. However, the local market has risen approximately 8% since then. To use this comparable effectively, they must adjust the sale price upward to approximately $702,000 to reflect current market conditions, ensuring their client receives accurate pricing advice based on today's market values.
Common Mistakes to Avoid on Valuation Questions
- •Confusing rising and falling market adjustments
- •Assuming older sales are automatically irrelevant without considering adjustments
- •Failing to consider the time element when market conditions have clearly changed
Related Topics & Key Terms
Key Terms:
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