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
Why this is correct: Seller-paid points are a financing concession. The seller absorbs a cost the buyer would otherwise pay at closing, and buyers commonly agree to a higher contract price in exchange, so the recorded price may exceed what the property would have brought on cash-equivalent terms. The appraiser's response is a cash-equivalency adjustment that removes the concession before the comparable is used. Why the other choices are wrong: 'A conditions-of-sale issue only' misfiles the item. Financing terms and conditions of sale are separate elements of comparison applied one after the other; conditions of sale covers motivation, such as a forced sale or a related-party transaction, while a seller-paid buydown is a financing term. 'A financing benefit to the seller' reverses who benefits; the points are a cost the seller pays and a benefit the buyer receives. 'An expenditure the buyer made immediately after purchase' describes a different element of comparison entirely, one covering items such as deferred maintenance or a required repair the buyer funds after closing, and here the payment was made by the seller at closing. Exam tip: Sort each fact into its element of comparison before you adjust. Points, buydowns and below-market seller financing are financing terms; motivation and relationship between the parties are conditions of sale.
Why This Is the Correct Answer
Seller-paid points are a financing concession, and the standard concern with any concession is that it inflates the recorded price above what the real estate alone commanded. Identifying it that way points directly to the right remedy, a cash equivalency adjustment applied before any physical or locational adjustment. The hedged word may is correct rather than weak, since the appraiser must test the market's actual reaction rather than assume a full dollar-for-dollar effect. Once the price is restated, the sale is a perfectly usable comparable.
Why the Other Options Are Wrong
Option A: A conditions-of-sale issue only
Financing terms and conditions of sale are two separate elements of comparison, applied in sequence rather than nested one inside the other. Financing terms covers the rate, points, buydowns, and seller carrybacks; conditions of sale covers motivation, such as a forced seller or an assemblage buyer. Calling seller-paid points a conditions-of-sale issue only puts them in the wrong slot in the adjustment sequence and misses the cash equivalency analysis they actually require.
Option B: A financing benefit to the seller
The points are a cost to the seller, not a benefit to him, since he funds them out of proceeds at closing. The benefit flows to the buyer in the form of a lower interest rate. What the seller receives in exchange is a higher nominal price, which is the mechanism that creates the distortion, but that is a trade rather than a financing benefit to the seller.
Option C: An expenditure the buyer made immediately after purchase
Expenditures made immediately after purchase is a distinct element of comparison covering costs a buyer knew he would have to incur right after closing, such as demolition, environmental remediation, or curing deferred maintenance, which are added to the price to reflect the true cost of acquiring the property in usable condition. Seller-paid points are paid by the seller at closing, not by the buyer afterward, so both the payer and the timing are wrong. The option tests whether you can keep the elements of comparison straight.
Five Before the Sticks
Memorize the five transactional elements as a phrase: Rights, Financing, Conditions, Expenditures, Market. All five fix the transaction. Only after them do you compare the buildings themselves.
How to use: When a stem names a concession, identify which of the five slots it belongs in before choosing an answer. Points, buydowns, and carrybacks go in financing; motivation goes in conditions; post-closing costs the buyer must incur go in expenditures.
Exam Tip
The exam loves to offer a plausible but misfiled element of comparison. Getting the slot right is often the whole question, even when the required adjustment direction is obvious.
Common Mistakes to Avoid
- -Filing a financing concession under conditions of sale
- -Deducting the full nominal concession without testing market reaction
- -Applying physical adjustments before restating the price to cash equivalency
Concept Deep Dive
Analysis
Discount points are prepaid interest, each point equal to one percent of the loan amount, paid at closing to lower the note rate. When the seller pays them, the buyer's monthly cost falls without the buyer bringing more cash, and in a negotiated transaction that benefit typically gets traded for a higher contract price. The recorded price therefore blends two things: what the market would pay for the real estate and what the buyer paid to have his financing subsidized. Cash equivalency analysis strips out the second component so the comparable can be measured against sales made on typical terms. The magnitude of the strip-out is a market question rather than an automatic one-for-one deduction, because in markets where concessions are near universal the market may capitalize only part of the concession into price.
Background Knowledge
You need the elements of comparison in their standard sequence: real property rights conveyed, financing terms, conditions of sale, expenditures made immediately after purchase, market conditions, then location and physical and economic characteristics. You also need to know what discount points are and how cash equivalency restates a price to typical financing terms.
Real-World Application
An appraiser verifying a sale learns the seller paid two points on a $280,000 loan, about $5,600. She compares recent sales with and without concessions in the same subdivision, finds the market absorbed most but not all of such concessions into price, deducts the supported portion, and grids the cash-equivalent figure.
More Sales Comparison Questions
Excess land differs from surplus land in that excess land:
A paired sales analysis reveals that homes with stainless-steel appliances sell for $2,100 more than identical homes with standard appliances — but only when the homes are priced below $350,000. In the subject’s neighborhood, median sale price is $410,000. What is the appraiser’s obligation regarding the $2,100 appliance adjustment?
GLA differs by 210 sq ft between subject and comparable. Paired sales support $65 per sq ft of living area. The line adjustment is:
Paired sales are drawn from transactions six months apart in a stable market. The time adjustment needed is:
The most appropriate unit of comparison is determined by:
A comparable superior to the subject in every adjusted category should produce an indication that is:
Three sales support $520,000; the borrower's purchase contract is $505,000. May the appraisal conclude above the contract price?
A comparable sold for $300,000 with the seller carrying a loan 2 points below market, a benefit worth $8,000. What is its cash-equivalent price?
Why is a foreclosure sale generally a poor comparable in a stable market?
A comparable sold 8 months ago for $250,000 in a market appreciating 6% per year. What is the time-adjusted price?
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
An appraiser who applies a $50 per square foot GLA adjustment in a market where paired sales support $70 will:
Next Question
An appraiser uses paired sales analysis to estimate an adjustment for a 3-car garage versus a 2-car garage. Four valid pairs are identified, each controlling for age, condition, and location. The observed price premiums are: $11,200, $13,800, $9,400, and $14,600. The appraiser excludes the $9,400 observation because it involved a property with unusually high custom finishes that likely inflated the garage premium beyond typical market reaction. What is the resulting paired-sales adjustment, rounded to the nearest $100, and which USPAP provision justifies the exclusion?