An appraiser using the sales comparison approach identifies a comparable that sold for $920,000 as part of a 1031 exchange under IRC §1031. The buyer was an exchanger operating under the 45-day identification deadline and had limited replacement property options remaining. How should the appraiser treat this comparable?
Correct Answer
B) Make a potential downward adjustment to account for the buyer's time pressure, which may have caused the exchanger to pay above market value
Under IRC §1031, an exchanger must identify replacement property within 45 days of closing the relinquished property and complete the exchange within 180 days. When an exchanger is near the end of the 45-day identification window with few viable options, time pressure can motivate above-market offers to secure a qualifying property. USPAP Standards Rule 1-2(e) requires the appraiser to analyze conditions of sale that may affect price. If evidence suggests the exchanger's urgency influenced the $920,000 price, a downward adjustment may be warranted to reflect what an unencumbered buyer would have paid.
Why This Is the Correct Answer
Why the Other Options Are Wrong
Deep Analysis of This Property Valuation Financial Analysis Question
Background Knowledge for Property Valuation Financial Analysis
Real World Application in Property Valuation Financial Analysis
Common Mistakes to Avoid on Property Valuation Financial Analysis Questions
Related Topics & Key Terms
Key Terms:
More Property Valuation Financial Analysis Questions
Example of economic obsolescence in real estate?
Which appraisal report type do California lenders commonly rely on for single-family residence financing?
Return of an investor’s investment is provided for through:
All of the following are one of the four important elements of value, except:
Which of the following is the least important factor used to determine the market value of a property?
- → A 4-unit apartment building in Sacramento has monthly rents of $1,500 per unit. The submarket vacancy rate is 5%. Annual operating expenses are $28,800. The prevailing cap rate for comparable properties is 6%. Using the income approach, what is the estimated value of the property?
- → Under California law, when a real estate licensee prepares a Comparative Market Analysis (CMA) for a property, what is the legal distinction between a CMA and a formal appraisal?
- → Owner converted master bedroom into 'granny flat' costing $50,000 but adding $30,000 value. Later, kitchen remodel cost $15,000 but added $20,000 value. Which statement is correct?
- → The appraisal approach that estimates value by comparing a property to similar recently sold properties is the:
- → The period of time a structure continues to earn sufficient income to continue operations is referred to as the structure’s:
- → An appraiser in California is using the cost approach for a property in Sacramento and must account for entrepreneurial profit (also called developer's profit). A local developer confirms that typical profit margins in the Sacramento market are 15-20% of total development costs. How should the appraiser handle entrepreneurial profit?
- → A California buyer's agent is reviewing comparable sales data and notices that the county recorder's office lists different documentary transfer tax amounts for similar properties in the same city. Some properties show both a county and city transfer tax, while others show only the county tax. What does this difference indicate about the sale verification process?
- → When conducting a sales comparison analysis in California, an appraiser discovers that the subject property has an Accessory Dwelling Unit (ADU) that was built under California's recent ADU legislation. How should the appraiser handle this feature?
- → A California real estate agent is selecting comparable sales for a CMA on a property in Fresno. The agent finds a sale from 14 months ago in the same neighborhood. Under standard California CMA practice, why might the agent hesitate to use this comparable?
- → A California real estate licensee is preparing a CMA and notices that one comparable property sold in a foreclosure auction conducted by a trustee under a deed of trust. How should this sale be handled in the CMA?
People Also Study
Buyer Representation Agreement
8% of exam
Property Ownership
10% of exam
Land Use Controls and Regulations
8% of exam
Valuation and Market Analysis
10% of exam
Previous Question
An appraiser identifies a comparable sale in which the seller paid $15,000 toward the buyer's closing costs. Under USPAP and California appraisal practice, how should this seller-paid concession be treated when using this comparable in the sales comparison approach?
Next Question
A California listing agent is preparing a CMA for a property in a neighborhood where the local city recently enacted a vacancy tax on vacant residential properties. Two comparables are available: one was occupied at the time of sale and one had been vacant for over a year and subject to the vacancy tax. How should the agent handle this difference in the CMA?