You are attempting to arrive at what the monthly rate of change that has recentl

Question

You are attempting to arrive at what the monthly rate of change that has recently occurred in the real estate market. In doing some market research, you find two properties that have sold twice within the last two years. Property A sold 22 months ago for $98,500; it sold last week for $108,000. Property B sold 20 months ago for $105,000; it sold two weeks ago for $113,500.

a. What is the monthly rate of change for Property A?

b. What is the monthly rate of change for Property B?

c. Using these two properties, what is the average monthly rate of change that can be used in adjusting comparable properties?

d. A comparable property sold 10 months ago for $102,500. Use the information above to calculate the adjusted price of this comparable.

Explanation / Answer

Property A: From 98,500$ to 108,000 $ in 22 months;
Thus let the rate of monthly change be 'r'
108,000 = 98500 * ( 1+r/100) 22
r = ( ( 108,000 / 98500 ) 1/22 -1) * 100 = 0.4194%
Thus, the monthly rate of change for property A is 0.4194 %

Property B: From 105,000$ to 113,500 $ in 20 months;
Thus let the rate of monthly change be 'r'
113,500 = 105,000 * ( 1+r/100) 20
r = ( ( 113,500 / 105,000 ) 1/20 -1) * 100 = 0.3899% ~= 0.39%
Thus, the monthly rate of change for property B is 0.39 %

c) For average monthly rate of change, take average of the two monthly rates of changes :
0.39 + 0.4194 / 2 = 0.4047 %

Thus, the average monthly rate of chance taht can be used in adjusting comparable properties is = 0.4047 %

d) A comparable property sold for % 102,500 10 months ago;
So given the average monthly rate of change,
the value of this proeprty today after 10 months will be :
(102,500) * (1.004047)10 = 106,724.54$

Thus, the adjusted price of this comparable property is $ 106, 724.54$

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