A 1,980-sf ranch house in a neighborhood where prices have been stable is being appraised by relative comparison. Four recent sales of the same builder's floor plan are each rated similar to the subject overall. Sale 1 sold for $421,000, Sale 2 for $424,000 and Sale 3 for $426,000. Sale 4, which closed two weeks ago and is the most recent, sold for $468,000. What should the appraiser do with Sale 4?
Correct Answer
A) Examine it for a difference or data error the ratings missed before weighting it
Sales rated similar to the subject should sell near one another; a price about $42,000 above a tight cluster in a stable market means something the ratings did not capture, such as an addition, a view, an included item, a recording error or a non-market condition. The appraiser investigates the sale before deciding how much weight it deserves. Weighting it equally or most heavily lets an unexplained price move the value, and discarding it without investigation may throw away a valid sale or hide a feature the subject shares.
Why This Is the Correct Answer
Option A is correct because Sale 4's $468,000 price is far above the $421,000 to $426,000 cluster of sales also rated similar, in a stable market. That gap points to a difference the ratings missed or an error in the data, which must be investigated before the sale can be weighted.
Why the Other Options Are Wrong
Option B: Weigh it equally with the other three, since all four are rated similar
Option B weighs Sale 4 equally with the other three because all are rated similar. The price gap suggests the rating itself may be wrong, so equal weight would let an unexplained $468,000 price pull the value upward.
Option C: Give it the most weight, since it is the most recent of the four sales
Option C gives Sale 4 the most weight because it is the most recent. In a stable market a two-week-old sale has no time advantage that explains a price far above the others.
Option D: Remove it from the analysis as a statistical outlier among the four sales
Option D removes Sale 4 as a statistical outlier. Discarding it without investigating may lose a valid sale; the reason for the gap, once found, decides whether and how it is used.
Odd one out, ask why
When three peas sit together and one rolls far away, look at the pea before you count or toss it.
How to use: Use this when one similarly rated sale is far from the rest.
Exam Tip
Prefer investigating an unexplained gap over averaging it in, favoring it or deleting it.
Common Mistakes to Avoid
- -Averaging in an unexplained high sale
- -Favoring the most recent sale in a stable market
- -Discarding a sale before learning why it differs
Concept Deep Dive
Analysis
The question tests the judgment needed when a sale rated similar sells far from other similar sales. The gap is evidence that the rating or the data may be wrong, so investigation comes before weighting or exclusion.
Background Knowledge
In relative comparison, sales rated similar overall should indicate values close to one another. When one does not, the appraiser verifies the sale and re-inspects its characteristics; the result may change its rating, call for an adjustment or show that it is not a market sale.
Real-World Application
An appraiser sees one similarly rated sale $40,000 above the rest. A call to the listing agent reveals a finished walkout basement not in the public record, so the sale is re-rated superior.
More Sales Comparison Questions
Supported adjustments are: non-market financing $10,000, GLA $36/sf, garage $3,500 per car, pool/spa $12,500. A comparable identical to the 2,800 sf subject sold for $267,000 with non-market financing. What is its adjusted price?
Using GLA $36/sf and non-market financing $10,000: a 3,100 sf comparable sold for $277,000 with non-market financing; the subject has 2,800 sf. Bath count differences are not adjusted. What is the adjusted price?
Using garage $3,500 per car and pool/spa $12,500: a comparable with a 2-car garage and a pool/spa sold for $268,000. The subject has a 3-car garage and no pool. What is the adjusted price?
Using GLA $36/sf, garage $3,500 per car and pool/spa $12,500: a 2,600 sf comparable with a 2-car garage and a pool/spa sold for $264,000. The subject is 2,800 sf with a 3-car garage and no pool. What is the adjusted price?
In a neighborhood with declining values and marketing times over six months, what must Fannie Mae lenders confirm about the sales comparison analysis?
A house is a 4,000 square foot home in an area of 2,000 square foot homes. How must the appraiser treat this over-improvement in the sales comparison grid?
According to the Interagency Appraisal and Evaluation Guidelines, which items should an appraisal’s market conditions discussion include?
A comparable listed at $420,000 and sold for $399,000. What sale-to-list price ratio (sale price ÷ list price) does this indicate?
An appraiser wants to describe the neighborhood boundaries in a Fannie Mae report. Which approach is acceptable?
Which of these is listed by Fannie Mae as a sales or financing concession?
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Previous Question
Sales differing in quality also have unresolved size, condition and design differences. What limits an isolated paired quality indication?
Next Question
A 2,400-sf home built in 2006 on a golf-course lot is being appraised. Sale 1, on a golf-course lot, is 2,520 sf and adjusts to $541,000. Sale 2, on a golf-course lot, is 2,310 sf and adjusts to $549,750. Sale 3 is a 2,380-sf home on an interior lot that sold for $540,000; its adjusted price of $572,500 includes a $31,000 lot adjustment. No sale in the set has a lot superior to the subject's. Which sale should receive the least reliance?