A 1950s bungalow sold for $242,000. The listing disclosed a failed septic system, and two weeks after closing the buyer replaced it at a cost of $18,000; agents active in the area confirm that buyers of such homes price in the cost of replacement. The buyer also spent $4,000 on new furniture after moving in. The seller had bought the house for $165,000 in 2012. What is the comparable's price after the adjustment for expenditures made immediately after sale?
Correct Answer
D) $260,000
The buyer anticipated the septic replacement when negotiating, so the effective price of a house with a working system is the sale price plus that expenditure: $242,000 + $18,000 = $260,000. The furniture is personal property bought separately after the sale and was not part of the price, and the seller's 2012 purchase price has no bearing on the adjustment. Deducting the septic cost reverses the direction, and subtracting the furniture treats a separate purchase as part of the price.
Why This Is the Correct Answer
Option D is correct because the buyer knew of the failed septic system and priced in its replacement, so the effective price of the house with a working system is $242,000 + $18,000 = $260,000. That figure reflects what the property would have sold for with the characteristic it gained right after the sale.
Why the Other Options Are Wrong
Option A: $224,000
Option A is wrong because $224,000 comes from deducting the $18,000 septic cost: $242,000 - $18,000. The buyer paid that cost on top of the price, so it is added, giving $260,000.
Option B: $242,000
Option B is wrong because $242,000 is the recorded price with no adjustment. It ignores the $18,000 the buyer had to spend immediately to make the house usable, and the correct figure is $242,000 + $18,000 = $260,000.
Option C: $256,000
Option C is wrong because $256,000 comes from $242,000 + $18,000 - $4,000, deducting the furniture as though it were included in the sale price. The buyer bought the furniture separately after closing, so it is not part of the price, and the correct figure is $260,000.
Buyer must spend, so add it
Costs the buyer knew had to be paid right after closing are part of what the buyer really paid, so add them to the price.
How to use: Use this when a buyer spent money right after purchase on work the buyer anticipated when negotiating.
Exam Tip
Separate anticipated real property work from unrelated purchases such as furniture, and ignore the seller's historical cost.
Common Mistakes to Avoid
- -Subtracting the buyer's post-sale expenditure
- -Including unrelated personal property purchases
- -Using the seller's past purchase price in the adjustment
Concept Deep Dive
Analysis
The question tests the expenditures-after-sale element: costs a buyer had to incur right after purchase, and anticipated when negotiating, are added to the price to show what the buyer effectively paid. The candidate must also set aside the furniture and the seller's old purchase price.
Background Knowledge
Expenditures made immediately after sale are a transactional element of comparison. When a buyer plans at the time of purchase to spend money on items such as a failed system, demolition or curing a code problem, the price paid plus that expenditure is the buyer's effective cost and the better measure of the property's value after the work.
Real-World Application
A buyer pays $242,000 for a bungalow knowing the septic system has failed and replaces it two weeks later for $18,000. An appraiser using the sale for a subject with a working system treats the buyer's effective price as $260,000.
More Sales Comparison Questions
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Previous Question
An appraiser develops two analyses of the same sales for a 2,050-sf colonial. In the relative comparison, the subject is rated superior to Sale 2, which sold for $396,000, and inferior to Sale 3, which sold for $409,000, and the appraiser concludes $403,000. In the adjustment grid, however, Sale 2's adjusted price is $414,000, higher than both the conclusion and the price of Sale 3. What should the appraiser do next?
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