When adjusting for location, financing terms, and market conditions, what is the proper order of these adjustments?

• A. Financing terms, market conditions, location
• B. Location, financing terms, market conditions
• C. Market conditions, financing terms, location
• D. Financing terms, location, market conditions

Answer: (A)

When adjusting for differences between the subject and comparables, you want to normalize each factor in a logical sequence so you’re isolating what each difference truly adds or subtracts to value. Start with financing terms because the way a sale is financed directly affects the price paid. By removing the impact of financing terms (often converting to an all-cash equivalent or standardizing terms), you compare the properties on a like-for-like basis, focusing on the property’s own characteristics rather than the loan arrangement.

Next, adjust for market conditions to bring the sale price up to the current date. This accounts for the overall movement of the market over time, independent of how the sale was financed.

Finally, apply the location adjustment. With financing and timing effects neutralized, location differences reflect a more pure spatial value factor, making the remaining adjustment more accurate and not conflated with the other factors. If location were adjusted first, or if market conditions were adjusted before accounting for financing terms, the adjustments could misattribute some of the differences to location or to time, respectively.