A relocation company acquired a comparable. Why examine its transaction details?
Correct Answer
D) Because its price may reflect a corporate formula or unusual motivation.
Verify the corporate acquisition’s actual terms, exposure and motivation and whether a formula affected price. Relocation transactions can be market based and verified; neither a formula nor subsequent resale automatically provides the superior market indication. Determine relevance from evidence.
Why This Is the Correct Answer
Option D is correct because a relocation company's purchase price may reflect a corporate formula or unusual motivation rather than typical market behavior. USPAP requires the appraiser to collect, verify and analyze the information necessary for credible results, so the transaction details must be examined to judge whether the price is a reliable market indication.
Why the Other Options Are Wrong
Option A: Because corporate transactions cannot be verified.
Option A says corporate transactions cannot be verified. Relocation transactions can be verified with the parties or reliable data sources; the reason to examine them is that the price may be affected by a formula or motivation.
Option B: Because corporate purchases are priced above market by a fixed rule.
Option B says corporate purchases are priced above market by a fixed rule. No fixed rule dictates that such prices are above market; the effect, if any, must be determined from the verified facts.
Option C: Because corporate buyers pay in cash, which removes the need to verify terms.
Option C says corporate buyers pay in cash, which removes the need to verify terms. Paying cash does not eliminate the need to verify motivation, pricing method and exposure, which can still affect the price.
Verify, Don't Assume
Unusual buyers such as relocation companies are a signal to verify how the price was set, not a reason to accept or reject the sale outright.
How to use: Use this when a comparable involves a corporate, relocation or other atypical buyer.
Exam Tip
Pick the answer that calls for verifying motivation and pricing; avoid answers claiming fixed rules or that verification is impossible or unnecessary.
Common Mistakes to Avoid
- -Assuming relocation sales are above market by a fixed rule
- -Using a corporate purchase price without verifying its terms
- -Excluding relocation sales without verifying the transaction
Concept Deep Dive
Analysis
This question tests verification of conditions of sale in relocation company transactions. A relocation company purchase may involve a corporate pricing formula or unusual motivation, so the appraiser verifies the actual terms, exposure and motivation. Such sales can still be market based; the point is to verify rather than assume.
Background Knowledge
Conditions of sale cover atypical motivations of buyers or sellers that may cause a price to differ from market value. Relocation purchases, where a company buys an employee's home, can involve formula pricing, so appraisers verify the transaction with parties such as the broker, buyer or seller, or a reliable data source.
Real-World Application
An appraiser finds a comparable deeded to a relocation company. By contacting the listing broker, the appraiser learns the purchase used a formula based on prior appraisals, and then weighs that sale, and any later resale to a typical buyer, based on the verified evidence.
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?
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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?
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