A comparable’s verified price is $305,000 and evidence establishes a $5,000 concession-induced price increase. Its consistently measured comparison area is 2000 sqft. What is the normalized cash-equivalent sale price per square foot?
Correct Answer
B) $150.00 per sqft
(305000 − 5000) / 2000 = 150 dollars per sqft. Normalize the supported price effect before unitizing. This unit price is not automatically a marginal area adjustment.
Why This Is the Correct Answer
Option B is correct because the concession-induced increase must be removed before unitizing: ($305,000 - $5,000) / 2,000 = $150.00 per square foot. This gives a cash-equivalent unit price on a consistent basis. Note that this average unit price is not automatically the same as a marginal adjustment rate for size differences.
Why the Other Options Are Wrong
Option A: $152.50 per sqft
Option A is wrong because $152.50 per sqft comes from dividing the unadjusted $305,000 by 2,000 square feet. It skips removing the $5,000 concession effect; the correct figure is ($305,000 - $5,000) / 2,000 = $150.00.
Option C: $155.00 per sqft
Option C is wrong because $155.00 per sqft results from adding the $5,000 instead of subtracting it: ($305,000 + $5,000) / 2,000 = $155.00. Since the concession inflated the price, it must be deducted, giving $150.00.
Option D: $2.50 per sqft
Option D is wrong because $2.50 per sqft is only the concession amount spread over the area, $5,000 / 2,000. It is not a sale price per square foot; the normalized figure is $300,000 / 2,000 = $150.00.
Clean the price, then divide
First strip out the concession effect from the price, then divide by the area. Dividing a dirty price spreads the distortion into the unit rate.
How to use: Use this order whenever a question combines a concession or financing effect with a unit-of-comparison calculation.
Exam Tip
Check the direction of the concession effect: if it increased the price, subtract it before computing any unit price.
Common Mistakes to Avoid
- -Computing price per square foot before removing the concession effect
- -Adding the concession amount instead of subtracting it
- -Treating an average price per square foot as the marginal size adjustment rate
Concept Deep Dive
Analysis
This question tests the order of operations: normalize the sale price for the supported concession effect first, then convert to a unit price. The concession raised the price by $5,000, so the cash-equivalent price is $305,000 - $5,000 = $300,000. Dividing by 2,000 square feet gives $150.00 per square foot.
Background Knowledge
Cash equivalency adjusts a sale price to remove the effect of non-market financing or concessions so comparables are on a common basis. Fannie Mae does not accept positive adjustments for sales or financing concessions; the adjustment reflects the price inflation, which is deducted. Units of comparison, such as price per square foot, are calculated after the price is normalized.
Real-World Application
A comparable sold for $305,000 with seller-paid costs that verification shows pushed the price up by $5,000. The appraiser records a $300,000 cash-equivalent price and uses $150 per square foot when comparing unit prices across sales.
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