A comparable sale included $18,000 of furnishings conveyed with the house. Before comparison, the appraiser should:
Correct Answer
D) Remove the non-realty contribution from the price
Why this is correct: The correct answer, 'Remove the non-realty contribution from the price,' is correct because the sales comparison approach values real property. Personal property (furnishings) included in the sale price must be identified, and their contributory value (typically fair market value, not replacement cost) deducted to isolate the real estate price. Why the other choices are wrong: 'Leave the price as recorded, since the buyer paid the full amount shown' is wrong; the recorded price includes both real and personal property. 'Add the furnishings' full replacement cost new to the recorded price' is wrong; this would double-count and inflate the value. 'Discard the sale entirely as unusable for any comparison purposes' is wrong; the sale can be used after proper adjustment. Exam tip: Always 'clean' the sale price by removing the value of any chattels (personal property) included in the sale.
Why This Is the Correct Answer
Deducting the contributory value of the furnishings isolates the price paid for the real estate, which is the only thing the sales comparison approach is measuring. Leaving it in would silently inflate the comparable and, through the grid, the subject's indicated value. USPAP's development requirements also call for the appraiser to analyze the effect on value of any personal property, trade fixtures, or intangible items that are not real property but are included in the transaction. Once cleaned, the sale is perfectly usable.
Why the Other Options Are Wrong
Option A: Leave the price as recorded, since the buyer paid the full amount shown
What the buyer paid in total is a true fact about the contract, not a measurement of the real estate. Leaving the price as recorded imports the furniture's value into every square foot conclusion drawn from that sale. Candidates pick this because the recorded price feels like the most objective number available, but objectivity about the wrong quantity is not accuracy.
Option B: Add the furnishings' full replacement cost new to the recorded price
Adding replacement cost new compounds two errors at once: it moves the price in the wrong direction, and it uses the wrong measure of value for used goods. Replacement cost new is what it would take to buy the items today as new, which no buyer of a furnished house is paying for a sofa with five years of wear. Contributory value in the secondhand market is the correct standard.
Option C: Discard the sale entirely as unusable for any comparison purposes
Discarding a verified sale that only needs a straightforward deduction wastes usable market evidence, and in thin markets the appraiser may not be able to afford that luxury. Exclusion is appropriate when a transaction's terms cannot be verified or when the distortion cannot be reliably quantified, neither of which is stated here. Throwing out data is not the conservative choice it appears to be, since a smaller comparable set weakens the conclusion.
Clean the Price First
Before a sale enters the grid, wash it. Rinse off personal property, financing concessions, and seller-paid costs until what remains is the price of the dirt and the sticks. Only a clean price can be adjusted honestly.
How to use: Whenever a stem mentions furniture, equipment, inventory, franchise value, or a business component riding along with real estate, choose the option that removes the non-realty contribution. Reject options that use replacement cost new or that discard the sale.
Exam Tip
Watch the measure of value in the answer choices. Contributory value or market value of the chattel is right; replacement cost new, original cost, and depreciated book value are all distractors.
Common Mistakes to Avoid
- -Accepting the contract's stated allocation for personal property without testing it
- -Deducting replacement cost new instead of contributory value
- -Forgetting to disclose non-realty items included in the subject's value opinion
Concept Deep Dive
Analysis
A real property appraisal values real estate and the rights attached to it, not the movable goods that happened to ride along in the same contract. When furniture, equipment, or other chattel is conveyed with a house, the recorded price is a blended figure covering two different asset classes, and only one of them belongs in the sales grid. The appraiser must identify the non-realty items, estimate their contributory value, and remove that amount before the sale enters the comparison. Contributory value for used personal property is what it adds to the transaction in the secondhand market, which is normally far below both its original cost and its replacement cost new, so the stated $18,000 figure has to be tested rather than accepted at face value. The same logic runs the other direction in the subject property: if the appraisal is of realty only, any non-realty contribution to the subject must be identified and excluded from the value opinion.
Background Knowledge
You need the distinction between real property, personal property, and fixtures, and the tests used to classify a fixture, such as method of attachment, adaptation to the realty, and intention of the parties. You also need the concept of contributory value and the requirement to analyze and disclose the effect of any non-realty items included in a transaction.
Real-World Application
An appraiser reviewing a furnished waterfront sale finds the contract lists $18,000 of furnishings. She checks secondhand pricing and comparable furnished listings, concludes the furniture contributed closer to $7,000 to the price, deducts that amount rather than the contract allocation, and documents both the stated figure and her reasoning.
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