A builder sale includes a $12,000 incentive package. What is appropriate before adjusting it?
Correct Answer
A) Verify the package and analyze its supported effect on the sale price.
Analyze the incentive’s verified market effect and what it includes. Seller cost does not automatically equal price inflation, and a physical upgrade may also affect property characteristics. Avoid ignoring, adding or deducting the entire package without examining double counting.
Why This Is the Correct Answer
Option A is correct because comparable sales with sales or financing concessions must be adjusted to reflect the impact, if any, on the sales price based on the market at the time of sale. That requires verifying the package's contents and analyzing its market effect. Some items, such as physical upgrades, may be reflected in property characteristics, so the analysis avoids double counting.
Why the Other Options Are Wrong
Option B: Add the full $12,000 to the recorded sale price before other adjustments.
Option B adds the full $12,000 to the recorded sale price. A concession that affects price tends to inflate it, so adding the package moves the wrong way, and the full package cost may not equal its effect on price.
Option C: Ignore the package because such incentives are common in this market.
Option C ignores the package because such incentives are common in the market. Comparable sales with concessions must be analyzed for their impact, if any, on price, whether or not incentives are common.
Option D: Exclude builder sales from the analysis as a class of transaction.
Option D excludes builder sales as a class. Builder sales can be useful comparables when their concessions are verified and analyzed.
Verify, then measure
First confirm what the incentive includes, then measure its effect on price before adjusting.
How to use: Use this when a comparable sale includes builder or seller incentives.
Exam Tip
Prefer answers that call for verification and market-supported analysis over answers that apply a full dollar amount mechanically.
Common Mistakes to Avoid
- -Deducting the full incentive amount without analysis
- -Adjusting for an upgrade both as a concession and as a physical feature
- -Ignoring concessions because they are common
Concept Deep Dive
Analysis
This question tests how to handle a builder incentive before making a concession adjustment. The appraiser should verify what the package includes and analyze its supported effect on the sale price. The seller's cost does not automatically equal the effect on price, and part of a package may be physical upgrades.
Background Knowledge
Sales concessions, such as incentives, closing cost help or upgrades, can affect what a buyer paid. The adjustment reflects the market impact on price, which may be less than, equal to or different from the seller's cost. Verification of the details helps the appraiser decide whether the item is a concession or a physical characteristic.
Real-World Application
A new-construction comparable came with an incentive package covering closing costs and upgraded appliances. The appraiser confirms the details with the builder, adjusts for the market effect of the closing cost help, and treats the appliances as a property feature.
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?
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