A comparable single-family home was listed at $339,000 and sold for $332,000 with seller financing at a rate well below the market rate. Paired sales of similar homes bought with conventional loans show the seller financing raised the price by $14,000. The sale went under contract eight months and closed six months before the effective date. Market data show a 4% increase in prices since the contract date and 3% since the closing date. Under Fannie Mae's Selling Guide, what is the comparable's price after the financing and market conditions adjustments?
Correct Answer
C) $330,720
First remove the price effect of the below-market seller financing from the sale price: $332,000 - $14,000 = $318,000. Fannie Mae measures market change from the comparable's contract date to the effective date, so the 4% increase applies to that cash-equivalent price: $318,000 x 1.04 = $330,720. Omitting the time adjustment leaves $318,000, using the closing date understates the change ($327,540), and starting from the $339,000 list price overstates the result ($338,000).
Why This Is the Correct Answer
Option C is correct because the seller financing's $14,000 effect is removed first, giving $318,000, and the 4% change from the contract date is then applied: $318,000 x 1.04 = $330,720. Fannie Mae measures market change from the contract date to the effective date.
Why the Other Options Are Wrong
Option A: $318,000
Option A is wrong because $318,000 = $332,000 - $14,000 removes the financing effect but leaves out the 4% market conditions increase. Applying it gives $318,000 x 1.04 = $330,720.
Option B: $327,540
Option B is wrong because $327,540 = $318,000 x 1.03 uses the 3% change since closing. Fannie Mae measures market conditions from the contract date, so the 4% figure applies: $318,000 x 1.04 = $330,720.
Option D: $338,000
Option D is wrong because $338,000 = ($339,000 - $14,000) x 1.04 starts from the $339,000 list price. An asking price is not what the buyer paid; the adjustments start from the $332,000 sale price, giving ($332,000 - $14,000) x 1.04 = $330,720.
Finance off, then contract-date trend
Take out the financing effect first, then apply the market change measured from the date the price was agreed.
How to use: Use this when a comparable needs both a financing adjustment and a percentage time adjustment.
Exam Tip
Check which date the time adjustment runs from and ignore the list price; the sale price is the starting point.
Common Mistakes to Avoid
- -Starting from the list price instead of the sale price
- -Measuring the time adjustment from the closing date in a Fannie Mae appraisal
- -Leaving out the market conditions adjustment after removing the financing effect
Concept Deep Dive
Analysis
The question tests a two-step transactional calculation: remove a financing effect, then apply the market conditions percentage to the cash-equivalent price. It also tests choosing the right period for the time adjustment and setting aside the list price.
Background Knowledge
Below-market seller financing typically raises the nominal price, and the appraiser removes its measured effect to reach a cash-equivalent price. The market conditions adjustment then applies to that price, and in Fannie Mae work the period runs from the comparable's contract date because that is when buyer and seller agreed on the price.
Real-World Application
An appraiser finds that a comparable's seller carried a low-rate note that buyers valued at about $14,000. She removes that amount, then applies the 4% market increase since the contract date and reports the support for both adjustments.
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?
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
Previous Question
A comparable apartment has an elevator and the subject does not. Market rents show a $6,000 annual rent difference, and the market capitalization rate is 7.5%. Using capitalization of the rent difference, what adjustment applies to the comparable?
Next Question
Paired resales of unchanged single-family homes in the neighborhood show prices rising at a steady pace. In a typical pair, a home sold for $320,000 ten months before the effective date and resold for $332,800 two months before it. Comparable 3 went under contract at $350,000 six months before the effective date. What market conditions adjustment applies to Comparable 3?