Which is an example of a time-adjustment method used in paired sales analysis?

• A. The capitalization rate method
• B. The compounding method
• C. The replacement cost method
• D. The direct comparison method

Answer: (B)

Time adjustments in paired sales analysis are used to reflect market changes between the sale date of a comparable and the date of value. The compounding method applies a yearly market rate and compounds it over the time difference to adjust the sale price, capturing how values accumulate or decline over multiple years. This approach acknowledges that market changes are not simply linear; they compound, so you multiply the observed price by (1 plus the annual rate) raised to the number of years between dates to bring the price to the desired date. The other methods aren’t about adjusting for time: the capitalization rate method converts income into value, the replacement cost method estimates value based on cost to reproduce improvements, and the direct comparison method focuses on adjusting for physical differences when comparing properties, not on adjusting for market timing.