A comparable sold for $450,000. Seller concessions cost $12,000, but verified market analysis attributes $6,000 of the price to them. What cash-equivalent price results?
Correct Answer
B) $444,000
450000 − 6000 = 444000; the 12000 seller cost is not the established price effect. Common errors: adding the concession effect instead of subtracting it gives $456,000; deducting the seller’s cost instead of the verified price effect gives $438,000; adding the seller’s full cost gives $462,000.
Why This Is the Correct Answer
Option B is correct because verified market analysis attributes $6,000 of the price to the concessions, so that amount is removed: $450,000 − $6,000 = $444,000. The $12,000 the seller spent is not the established price effect.
Why the Other Options Are Wrong
Option A: $438,000
Option A, $438,000, deducts the seller's full $12,000 cost: $450,000 − $12,000. The market analysis shows only $6,000 of the price is attributable to the concessions, so the result is $444,000.
Option C: $456,000
Option C, $456,000, adds the concession effect instead of subtracting it: $450,000 + $6,000. Concessions inflate the recorded price, so the adjustment is downward, and Fannie Mae does not accept positive adjustments for concessions.
Option D: $462,000
Option D, $462,000, adds the seller's full $12,000 cost: $450,000 + $12,000. That uses the wrong figure and the wrong direction; the verified $6,000 price effect is deducted, giving $450,000 − $6,000 = $444,000.
Effect, not expense
Deduct the concession's effect on price shown by the market, not the seller's expense.
How to use: Use this when a concession question gives both a cost and a market-supported price effect.
Exam Tip
When both a face amount and a verified market effect are given, the verified effect is usually the figure to use.
Common Mistakes to Avoid
- -Deducting the full concession amount without market support
- -Making a positive adjustment for concessions
- -Adding the seller's cost to the recorded price
Concept Deep Dive
Analysis
This question tests the difference between a concession's face amount and its effect on price. The cash-equivalent adjustment reflects how much the concession actually raised the price, as shown by market analysis. That verified effect, not the seller's cost, is deducted.
Background Knowledge
Sales and financing concessions can push a recorded price above what a cash buyer would pay. Cash equivalence removes the part of the price attributable to those concessions, as supported by market evidence. Fannie Mae does not accept positive adjustments for sales or financing concessions.
Real-World Application
A seller paid $12,000 toward a buyer's closing costs. Local sales with and without concessions suggest buyers paid about $6,000 more because of that help, so the appraiser deducts $6,000 from the comparable's price.
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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