A comparable purchased by a relocation company requires analysis because:
Correct Answer
D) The purchase may have followed a formula, not negotiation
Why this is correct: The correct answer is 'The purchase may have followed a formula, not negotiation.' The governing concept is that a valid comparable sale must reflect typical market conditions, including arms-length negotiation. Relocation company purchases often follow a predetermined corporate formula based on an appraisal or policy, which may not reflect the open-market bargaining between a typical buyer and seller. The original explanation states these purchases follow appraisal-based formulas, making the subsequent resale a better market indicator. Why the other choices are wrong: 'Such sales cannot be verified' is wrong because relocation sales are typically well-documented and can be verified. 'Relocation company sales are always above market value' is incorrect; they are not always above market and may be at or even below market due to corporate policies. 'Corporate buyers pay only cash' is wrong because the financing method (cash or loan) does not inherently disqualify a sale, and corporate buyers may use various payment methods. Exam tip: When analyzing comparables, always ask if the sale price resulted from typical market negotiation. Institutional or corporate sales often require extra scrutiny.
Why This Is the Correct Answer
The defect in a relocation buyout is that price came from a policy computation, not from negotiation, so it may not represent what a typical buyer and seller would have agreed on. That does not automatically disqualify the sale; it means verification is required to learn how the price was set, whether the employee had bargaining room, and whether incentives or closing cost payments were layered on. Once the appraiser understands the mechanism, she can decide whether to adjust the sale, use the subsequent resale instead, or set the transaction aside. The word may in the stem is deliberate, because some relocation transactions do reflect market negotiation.
Why the Other Options Are Wrong
Option A: Such sales cannot be verified
Relocation transactions are usually among the best documented sales an appraiser will encounter, with buyout agreements, appraisal averages, and settlement statements all in writing. Verification is not the obstacle; interpretation is. The choice fails because it names a practical problem that does not exist while missing the conceptual one that does.
Option B: Relocation company sales are always above market value
Buyout prices are not systematically above market. Because they are often the average of independent appraisals, they can land above, at, or below what an open-market sale would have produced, and some programs deliberately set the guaranteed offer at a discount to the appraised figure. The word always is the giveaway, since a valid comparable-analysis rule almost never runs in one direction only.
Option C: Corporate buyers pay only cash
Payment method does not determine whether a sale is arm's length, and in any event a cash purchase would be handled through cash equivalency analysis rather than by rejecting the sale. Many relocation vendors do pay cash, which is what makes this feel right, but a cash price is often the cleanest kind of comparable rather than a suspect one. The option confuses a financing characteristic with a motivation problem.
Formula Is Not Negotiation
Ask of every comparable: did two parties argue their way to this number, or did a policy compute it? Relocation buyouts, estate settlements at appraised value, intra-family transfers, and internal corporate transfers are all computed rather than negotiated prices.
How to use: When a stem names an institutional buyer such as a relocation firm, a lender selling REO, a government agency, or an affiliated entity, choose the answer about atypical motivation or non-negotiated pricing rather than one about verification or financing.
Exam Tip
In a relocation fact pattern, look for an answer that points to the subsequent resale. That second transaction is usually the market indicator the exam wants you to prefer.
Common Mistakes to Avoid
- -Using a relocation buyout price without verifying how it was determined
- -Assuming institutional buyers always overpay
- -Overlooking the relocation company's resale, which is usually the better comparable
Concept Deep Dive
Analysis
Market value definitions all assume an arm's length transaction between a willing buyer and a willing seller, each acting prudently, knowledgeably, and without undue compulsion. A relocation company purchase frequently fails that assumption because the price is not the product of open bargaining at all. Under a typical corporate relocation program, the employer or its relocation vendor commissions two or more appraisals, averages them under a written policy, and offers the transferring employee a guaranteed buyout at that computed figure. The number is therefore an output of a formula rather than an observed meeting of minds, and the seller is often under time compulsion because a job start date is fixed. That is why appraisers treat the relocation company's later resale of the same house on the open market as the more reliable indicator of market behavior than the buyout price itself.
Background Knowledge
You need the elements of the market value definition, especially arm's length dealing, typical motivation, and absence of undue stimulus, and the requirement to verify the terms and conditions of each comparable sale. You should also know the conditions of sale adjustment and when a transaction should be excluded rather than adjusted.
Real-World Application
An appraiser finds a subdivision comparable that sold twice in five months, first to a relocation company and then to an owner-occupant $9,000 lower. She verifies that the first price was the average of two employer-commissioned appraisals, uses the second, market-exposed sale as her comparable, and explains the two-step chain in her report.
More Sales Comparison Questions
Excess land differs from surplus land in that excess land:
A paired sales analysis reveals that homes with stainless-steel appliances sell for $2,100 more than identical homes with standard appliances — but only when the homes are priced below $350,000. In the subject’s neighborhood, median sale price is $410,000. What is the appraiser’s obligation regarding the $2,100 appliance adjustment?
GLA differs by 210 sq ft between subject and comparable. Paired sales support $65 per sq ft of living area. The line adjustment is:
Paired sales are drawn from transactions six months apart in a stable market. The time adjustment needed is:
The most appropriate unit of comparison is determined by:
A comparable superior to the subject in every adjusted category should produce an indication that is:
Three sales support $520,000; the borrower's purchase contract is $505,000. May the appraisal conclude above the contract price?
A comparable sold for $300,000 with the seller carrying a loan 2 points below market, a benefit worth $8,000. What is its cash-equivalent price?
Why is a foreclosure sale generally a poor comparable in a stable market?
A comparable sold 8 months ago for $250,000 in a market appreciating 6% per year. What is the time-adjusted price?
People Also Study
Real Estate Market
13.6% of exam
Property Description
11.8% of exam
Land or Site Valuation
4.5% of exam
Cost Approach
13.6% of exam
Income Approach
8.2% of exam