A comparable sold for $520,000. Verified market evidence establishes separate nonoverlapping price effects of $10,000 and $3,000 from seller incentives. What cash-equivalent price results?
Correct Answer
A) $507,000
520000 − 10000 − 3000 = 507000. Common errors: leaving out the $3,000 effect gives $510,000; leaving out the $10,000 effect gives $517,000; adding the incentive effects instead of subtracting them gives $533,000.
Why This Is the Correct Answer
Option A is correct because the two separate, nonoverlapping incentive effects both inflated the price and must both be removed. $520,000 − $10,000 − $3,000 = $507,000. Concession adjustments reduce the comparable's price toward a cash-equivalent figure; positive adjustments for concessions are not acceptable.
Why the Other Options Are Wrong
Option B: $510,000
Option B, $510,000, comes from subtracting only the $10,000 effect ($520,000 − $10,000) and leaving out the $3,000 effect. The correct calculation removes both: $520,000 − $10,000 − $3,000 = $507,000.
Option C: $517,000
Option C, $517,000, comes from subtracting only the $3,000 effect ($520,000 − $3,000) and leaving out the $10,000 effect. Both verified effects must be removed, giving $507,000.
Option D: $533,000
Option D, $533,000, comes from adding the incentive effects ($520,000 + $10,000 + $3,000) instead of subtracting them. Incentives that raised the price are removed, so the correct result is $520,000 − $10,000 − $3,000 = $507,000.
Concessions come off
Seller incentives pad the price, so their verified effects come off the comparable's price.
How to use: Use this to choose the subtraction direction whenever seller concessions appear in a comparable.
Exam Tip
When a question gives more than one concession effect, check that every one is included in the deduction. Distractors often drop one effect or add instead of subtract.
Common Mistakes to Avoid
- -Deducting only one of several concession effects
- -Adding concession effects to the sale price
- -Making a positive adjustment for concessions
Concept Deep Dive
Analysis
This question tests cash equivalency when seller incentives increased a comparable's price. Each verified price effect from the incentives is removed from the sale price, so both are subtracted. The calculation is $520,000 − $10,000 − $3,000 = $507,000.
Background Knowledge
Sales or financing concessions paid by the seller can inflate a recorded sale price above what the property would bring in a cash-equivalent transaction. Appraisers adjust the comparable downward by the market-supported price effect of those concessions. Fannie Mae does not accept positive adjustments for sales or financing concessions.
Real-World Application
A comparable sold for $520,000, and verification shows the seller paid some of the buyer's closing costs and provided another incentive. Market evidence shows these raised the price by $10,000 and $3,000. The appraiser adjusts the comparable to $507,000 before comparing it to the subject.
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