A comparable has on-site environmental contamination that the subject does not. How should it be treated?
Correct Answer
A) Adjust the comparable for this physical characteristic difference
Environmental contamination is a negative physical characteristic that often has a substantial effect on value, so comparable prices should be adjusted for the difference. Adjustments are made to the comparable, not the subject.
Why This Is the Correct Answer
Option A is correct because environmental contamination may be viewed as a negative physical characteristic that often has a substantial effect on value. An adjustment should be made to comparable sale prices to reflect differences between the subject and the comparable for this characteristic. Adjustments are made to the comparable, not the subject.
Why the Other Options Are Wrong
Option B: Ignore it, since contamination is not a factor affecting value
Option B says to ignore contamination because it is not a factor affecting value. Contamination often has a substantial effect on value, so ignoring the difference would distort the comparison.
Option C: Adjust the subject downward instead of adjusting the comparable
Option C, adjusting the subject downward instead, reverses the method. Adjustments are made to the comparable's price toward the subject, and here the uncontaminated subject should not be penalized.
Option D: Treat the contamination as a market conditions adjustment
Option D treats contamination as a market conditions adjustment. Market conditions adjustments address changes over time; contamination is a property characteristic difference.
Dirt is a physical trait
Contamination is part of the property's physical characteristics, so it belongs in the physical adjustments to the comparable.
How to use: Use this when deciding which adjustment category covers contamination.
Exam Tip
Watch for options that adjust the subject; the sales comparison grid adjusts the comparables.
Common Mistakes to Avoid
- -Adjusting the subject's value instead of the comparable's price
- -Classifying contamination as a time adjustment
- -Assuming contamination does not affect value
Concept Deep Dive
Analysis
This question tests how environmental contamination is treated in the sales comparison approach. Contamination may be viewed as a negative physical characteristic of the property. When the comparable has it and the subject does not, the comparable's price should be adjusted for the difference.
Background Knowledge
Physical characteristic adjustments account for differences in the properties themselves, such as size, condition and site features. Environmental contamination can be considered a negative physical characteristic. Because the subject is the property being valued, the comparable's price is adjusted toward the subject.
Real-World Application
A comparable house had a leaking underground heating oil tank at the time of sale, while the subject is clean. The appraiser researches the market effect of the contamination and makes an upward adjustment to the comparable, which is inferior in this respect.
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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