In the sales comparison approach, which difference calls for an upward adjustment to the comparable's sale price?
Correct Answer
D) The comparable sold six months ago in a rising market
When a comparable sold six months ago in a rising market, its price is adjusted upward to reflect current market conditions, which raises the indicated value of the subject. A better location, larger size or superior fittings make the comparable superior, so its price is adjusted downward.
Why This Is the Correct Answer
Prices have risen since the comparable sold, so its price is adjusted upward to today's level, which raises the indicated value for the subject.
Why the Other Options Are Wrong
Option A: The comparable is in a better location than the subject
A better location makes the comparable superior, so its price is adjusted down.
Option B: The comparable is larger than the subject property
A larger comparable is superior, so its price is adjusted down to match the subject.
Option C: The comparable has superior fixtures and fittings
Superior fittings in the comparable call for a downward adjustment to its price.
Deep Analysis of This Valuation Question
Every adjustment answers one question: what would this comparable have sold for if it were identical to the subject and sold today? Superior features in the comparable mean a downward adjustment; inferior features or an out-of-date price in a rising market mean an upward one.
Background Knowledge for Valuation
The sales comparison approach adjusts the comparable's price, never the subject's. Typical adjustments cover time (market conditions), location, size, condition and features.
Memory Technique
Remember 'TIME RISES' - when Time has passed in a Rising market, the comparable's price RISES (gets adjusted upward), which RISES the subject's indicated value. Think of a hot air balloon rising over time - older sales in rising markets need to be lifted up to current levels.
When you see time-related adjustments in sales comparison questions, ask: 'Has time passed?' and 'Is the market rising or falling?' If time passed in a rising market, the adjustment goes UP, increasing the subject's value.
Exam Tip for Valuation
For sales comparison adjustments, remember you're adjusting the COMPARABLE to match the SUBJECT. If the comparable is better/superior, adjust DOWN. If market conditions have improved since the comparable sold, adjust UP.
Real World Application in Valuation
A registered valuer is valuing a three-bedroom home in Auckland. They find a comparable sale from eight months ago for $800,000, but the market has risen 6% since then. They adjust the comparable upward to $848,000 to reflect current conditions. This adjusted figure better indicates what the subject property is worth today, ensuring the valuation reflects current market reality rather than outdated pricing from a softer market period.
Common Mistakes to Avoid on Valuation Questions
- •Confusing adjustment direction - adjusting the subject instead of the comparable
- •Making downward time adjustments in rising markets
- •Forgetting that superior comparable features require downward adjustments
Related Topics & Key Terms
Key Terms:
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