A comparable ranch home in good repair sold for $318,000. The otherwise similar subject has a furnace that does not work and peeling exterior paint. Replacing the furnace costs $6,200, plus $700 to remove the old unit, and repainting costs $4,100. Both homes had their roofs replaced two years ago at a cost of about $12,000. Market data show buyers reduce their price by about the cost to cure items like these. What is the comparable's sale price adjusted for condition?
Correct Answer
B) $307,000
The cost to cure is $6,200 + $700 + $4,100 = $11,000, including the cost of removing the dead furnace. The comparable is superior in condition, so the adjustment is negative: $318,000 - $11,000 = $307,000. Leaving out the removal gives $307,700, deducting the shared roof cost as well gives $295,000, and adding the cost to cure gives $329,000.
Why This Is the Correct Answer
Option B is correct because the full cost to cure is $6,200 for the furnace, $700 to remove the old unit and $4,100 for paint, a total of $11,000. Since the comparable is superior in condition, that amount is deducted: $318,000 - $11,000 = $307,000.
Why the Other Options Are Wrong
Option A: $295,000
Option A, $295,000, also deducts the $12,000 roof cost: $318,000 - $11,000 - $12,000. Both homes had new roofs two years ago, so there is no difference to adjust; the correct result is $307,000.
Option C: $307,700
Option C, $307,700, deducts only $6,200 + $4,100 = $10,300 and leaves out the $700 to remove the non-working furnace. Removal is part of the cost to cure, so the deduction is $11,000 and the result is $307,000.
Option D: $329,000
Option D, $329,000, adds the $11,000 cost to cure: $318,000 + $11,000. The comparable is in better condition than the subject, so the adjustment is negative and the result is $307,000.
Cure it fully, then subtract
Add every dollar needed to fix the problem, including tear-out; if the comparable is the one without the problem, take that total off its price.
How to use: Use this on condition adjustments where the subject has deferred maintenance the comparable lacks.
Exam Tip
Strike out costs for features the subject and comparable share before adding. Then ask which property is better before choosing the sign.
Common Mistakes to Avoid
- -Leaving removal or disposal out of the cost to cure
- -Adjusting for a feature both properties share
- -Adding the cost to cure to a comparable that is in better condition
Concept Deep Dive
Analysis
This question combines three judgments: measuring a condition difference by cost to cure, including every cost needed to cure it, and setting the sign. The comparable is in better condition than the subject, so its price comes down. The roof replacement is a feature both homes share and calls for no adjustment.
Background Knowledge
Cost to cure measures curable physical deterioration: the cost to restore an item to new or nearly new condition. It can exceed the cost new of the item, for example when an old unit must be removed first. In the sales comparison grid, a comparable that is superior in condition receives a negative adjustment.
Real-World Application
An appraiser inspecting a home finds the furnace dead and the siding paint failing, while the best comparable sold freshly updated. The appraiser gets an HVAC contractor's quote that includes haul-away and a painter's estimate, and deducts the total 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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