A comparable where the seller paid points on the buyer's new loan should be analyzed as:
Correct Answer
D) A concession that may have inflated the recorded price
Seller-paid loan points are a financing concession affecting the buyer’s financing cost. Investigate whether and how that concession affected the actual sale price; an adjustment may be zero or differ from the amount paid. This is distinct from a buyer’s later repair expenditure. Sale motivation and financing terms may both warrant analysis when present; neither category alone mandates a fixed deduction.
Why This Is the Correct Answer
Option D is correct because seller-paid points are a financing concession, and when points are paid the seller receives less than the nominal sale price. The appraiser should analyze whether and how much the concession inflated the recorded price; the supported adjustment may differ from the amount paid.
Why the Other Options Are Wrong
Option A: A conditions-of-sale issue only
Option A treats it as a conditions-of-sale issue only. Seller-paid points are a financing concession, so limiting the analysis to conditions of sale misclassifies the item, even though motivation may also be examined when relevant.
Option B: A financing benefit to the seller
Option B calls it a financing benefit to the seller. The seller pays the points and receives less than the nominal price; the financing benefit goes to the buyer.
Option C: An expenditure the buyer made immediately after purchase
Option C calls it an expenditure the buyer made immediately after purchase. Points paid by the seller at closing are part of the financing terms of the sale, which is different from a buyer's post-purchase spending such as repairs.
Seller pays, price may swell
When the seller pays the buyer's financing costs, the recorded price may be swollen by that help, so check whether to take it back out.
How to use: Use this when a stem mentions seller-paid points or closing costs.
Exam Tip
Identify who received the benefit: seller-paid financing items help the buyer and may have pushed the stated price up.
Common Mistakes to Avoid
- -Deducting the full face amount of the points without checking the market effect
- -Thinking the points benefited the seller
- -Making a positive adjustment for a sales concession
Concept Deep Dive
Analysis
This question tests classification of seller-paid loan points. They are a financing concession that benefits the buyer and may have raised the recorded price, so the appraiser investigates the effect on price rather than assuming a fixed deduction.
Background Knowledge
Financing concessions such as seller-paid points or closing costs can cause a buyer to pay a higher price than would be paid on typical terms. The appraiser verifies the terms and adjusts for the market reaction to the concession, which is typically a downward adjustment to the comparable.
Real-World Application
Verifying a comparable, an appraiser learns the seller paid two points on the buyer's mortgage. Comparing it with similar sales without concessions, the appraiser finds the price was raised and applies a supported downward adjustment.
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
Verified applicable evidence supports $70 per sqft for material nonzero size differences, but an appraiser uses $50. What follows?
Next Question
This week an appraiser's assignments include a vacant building lot in a subdivision where lots of similar size sell for about the same price, a detached single-family home, and a fourplex. Which units of comparison best fit these three properties, in that order?