Paralegal Advanced Competency Exam (PACE) Practice Exam

What is a blockage discount?

1. A reduction in property value due to partial sale

2. A discount applied during under market conditions

3. A valuation decrease when selling an entire property

4. A tax deduction related to property transactions

The correct answer is: A valuation decrease when selling an entire property

A blockage discount refers to a reduction in the value of a large block of shares or interests in a property when they are sold all at once, as opposed to being sold in smaller transactions over time. When an entire property is put on sale, or when a large volume of shares is sold, this generally has the potential to lower the overall market price due to the sudden increase in supply and decrease in demand. Buyers may be unwilling to pay the same per-unit price for a large quantity of shares or property as they would for smaller increments, hence reflecting a decrease in valuation. This concept primarily applies to property or stock valuations where market dynamics can influence perceived value. In contrast, the other options do not accurately capture the definition of a blockage discount. The first option discusses property value reduction due to partial sale, which is not the focal point of a blockage discount. The second option refers to discounts applied under market conditions, which lacks specificity regarding the scale and volume that define the blockage discount. Lastly, while tax deductions may relate to property transactions, they are not connected to the concept of blockage discounts in valuation contexts.