A comparable townhouse sold for $300,000. It needs +$34,000 for its smaller living area, −$27,000 for its superior location and −$4,000 for its newer roof, a net adjustment of +$3,000. The appraiser's draft comment calls it the most comparable sale because its net adjustment is 1% of its price. How should this sale's comparability be judged?
Correct Answer
B) As less comparable, because gross adjustment is about 22%
Net adjustment lets large plus and minus adjustments cancel, so it can hide big differences. The absolute gross adjustment, $34,000 + $27,000 + $4,000 = $65,000 or about 21.7% of the $300,000 price, shows that this townhouse differs substantially from the subject in size and location. A small gap between sale price and adjusted price is the same net figure in another form, and three adjustments by themselves do not make a sale unreliable.
Why This Is the Correct Answer
Option B is correct because the absolute gross adjustment is $34,000 + $27,000 + $4,000 = $65,000, about 22% of the $300,000 price. That large total shows real differences in size and location, so the 1% net figure overstates the sale's comparability.
Why the Other Options Are Wrong
Option A: As high, because offsetting adjustments cancel out the differences
Option A rates the sale highly because offsetting adjustments cancel out the differences. The adjustments cancel only in the arithmetic; the townhouse is still much smaller and better located than the subject, and each adjustment carries its own estimation risk.
Option C: As high, because its adjusted price is close to its actual sale price
Option C rates the sale highly because its adjusted price is close to its actual sale price. That closeness is just the +$3,000 net adjustment restated, and it hides the $65,000 of gross adjustment.
Option D: As weak, because a sale needing three adjustments is unreliable
Option D rates the sale weak because a sale needing three adjustments is unreliable. The count of adjustments is a rough guide, but three small adjustments could be fine; the weakness here comes from their size, about 22% gross.
Net hides, gross shows
Pluses and minuses can cancel in the net total, but the gross total counts every difference you had to fix.
How to use: Use it when a sale's small net adjustment is offered as proof that it is highly comparable.
Exam Tip
When a sale has large adjustments in both directions, compute the gross percentage before judging it. A low net percentage alone does not show strong comparability.
Common Mistakes to Avoid
- -Using net adjustment as the measure of comparability
- -Treating offsetting adjustments as if the differences did not exist
- -Judging a sale by the number of adjustments while ignoring their size
Concept Deep Dive
Analysis
The question tests the difference between net and gross adjustment as measures of comparability. Add the absolute values of the adjustments to see how different the sale really is; a small net figure can come from large adjustments that offset each other.
Background Knowledge
Net adjustment is the signed sum of the adjustments; gross adjustment is the sum of their absolute values. Because gross adjustment measures every difference regardless of direction, it is the better guide to how comparable a sale is.
Real-World Application
An appraiser finds a smaller townhouse in a better complex whose size and location adjustments nearly offset. The appraiser reports the gross adjustment and gives the sale less weight than a similar unit in the subject's own complex.
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?
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Three adjusted indications are $412,000 with 5% gross adjustments, $405,000 with 22%, and $410,000 with 8%. With no further reliability evidence, what follows?