A property’s reported price is an allocation of a multi-property portfolio purchase. What must be investigated before using it as a comparable?
Correct Answer
D) Whether the allocation is reliable evidence for this one property
A price allocated within a portfolio may differ from an independently negotiated price for the individual property. Investigate the allocation method, transaction terms and relevance before using it; neither automatic acceptance nor automatic rejection follows merely from the portfolio label.
Why This Is the Correct Answer
Option D is correct because an allocated portfolio price may differ from an independently negotiated price for the individual property. USPAP requires collecting, verifying and analyzing all information necessary for credible results, so the appraiser investigates the allocation method, terms and relevance. Neither automatic acceptance nor automatic rejection follows from the portfolio label.
Why the Other Options Are Wrong
Option A: Whether portfolio transactions are prohibited from use by law
Option A, checking whether portfolio transactions are prohibited by law, misses the issue. The concern is whether the allocated price reliably reflects the individual property's value, not a legal ban on using such sales.
Option B: Whether the buyer’s lender approved financing for the portfolio
Option B, checking whether the buyer's lender approved portfolio financing, does not show whether the allocated price fits this property. Loan approval does not test the allocation's reliability.
Option C: Whether the assessor’s value must replace the allocated price
Option C, asking whether the assessor's value must replace the allocated price, is wrong because an assessed value is not a substitute for verified sale evidence. The appraiser instead investigates how reliable the allocation is.
Allocated is not negotiated
A slice of a portfolio price was not bargained for alone, so check how it was set before using it.
How to use: Use this when a comparable's price comes from a bulk or portfolio deal.
Exam Tip
Choose the answer that calls for investigating reliability rather than one that accepts or rejects the sale outright.
Common Mistakes to Avoid
- -Accepting an allocated price without investigation
- -Rejecting all portfolio sales without checking them
- -Substituting the assessed value for the sale price
Concept Deep Dive
Analysis
This question tests verification of an allocated price. When a property's price is a share of a portfolio purchase, it may not match what the property would bring in its own negotiated sale. The appraiser must investigate whether the allocation is reliable evidence for that one property.
Background Knowledge
Portfolio or bulk sales often involve a single total price, with amounts allocated to each property for tax, accounting or financing reasons. Such allocations may not reflect the market value of each property. Appraisers verify transaction data with parties to the sale or reliable sources before relying on it.
Real-World Application
An appraiser finds a comparable that was one of ten rental houses sold together to an investor. The appraiser contacts the broker to learn how the total price was allocated before deciding whether the figure is useful evidence.
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?
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