A comparable's recorded price includes a $9,000 credit for repairs the buyer agreed to complete. The appraiser should:
Correct Answer
B) Analyze the credit's effect on the price paid for the property
Why this is correct: A repair credit is a seller concession that likely inflated the recorded sale price. The appraiser must analyze its effect to determine the price paid for the property itself, adjusting the comparable to reflect the property's condition-adjusted value. Why the other choices are wrong: Adding the credit would further inflate the price. Ignoring it overlooks a material concession. Excluding the comparable is unnecessary if the credit can be analyzed and adjusted. Exam tip: Seller concessions require analysis to isolate the property's value from financing incentives.
Why This Is the Correct Answer
Analyzing the credit's effect on the price paid for the property is the response that opens both questions rather than answering either by reflex. It leads the appraiser to determine the cash-equivalent price and to characterize the comparable's condition as of the sale date. Whether the resulting adjustment equals the full $9,000 depends on market evidence, since markets do not always capitalize concessions dollar for dollar. The sale remains fully usable once the analysis is done.
Why the Other Options Are Wrong
Option A: Add the credit to the recorded sale price
Adding the credit moves the price further from what the real estate commanded, compounding rather than correcting the inflation the concession created. It also implies the property was worth more because repairs were still outstanding, which reverses the economics. The error usually comes from thinking of the credit as money the seller lost that should be restored to the price.
Option C: Ignore the credit entirely as a private arrangement
Calling the credit a private arrangement misses that it changed the price, and price is the one number the entire grid rests on. Concessions are routinely disclosed on settlement statements and in listing remarks precisely because they alter what the transaction means. Ignoring it would leave every downstream adjustment operating on a contaminated figure.
Option D: Exclude the comparable from consideration
Exclusion is unnecessary when the distortion is disclosed and quantifiable, and here the stem gives the exact amount. Discarding a verified sale weakens the analysis by shrinking the comparable set, especially in thin markets. Reserve exclusion for transactions whose terms cannot be verified or whose distortions cannot be measured.
Two Questions, One Credit
Every repair credit raises two separate issues. First: did it puff up the price? That is cash equivalency. Second: what shape was the property in when it sold? That is the condition adjustment. Answer both or the row is wrong.
How to use: When a stem describes money changing hands for work not yet done, choose the analyze option. Then in practice run the price correction first and the condition comparison second, keeping them as separate lines.
Exam Tip
Beware of double counting. If you deduct the credit from the price and then also apply a full cost-to-cure condition adjustment, you have penalized the same defect twice.
Common Mistakes to Avoid
- -Adding a concession back to the price
- -Double counting by adjusting for both the credit and the full cost to cure
- -Excluding an otherwise good sale because it carried a concession
Concept Deep Dive
Analysis
A repair credit is a seller concession in cash form: instead of fixing the roof, the seller reduces what he nets by $9,000 and lets the buyer handle it after closing. The parties usually structure it this way because a lender will not fund a loan against a property with certain unrepaired conditions, or because the buyer wants control over the work. The important consequence for the appraiser is that the recorded price describes a property in unrepaired condition, while $9,000 of the money changing hands is earmarked for work not yet done. Two separate questions follow. First, did the credit inflate the recorded price, as concessions typically do, so that cash equivalency requires a downward adjustment? Second, what condition was the comparable actually in at the moment of sale, since that is the condition the grid must compare to the subject? Handling only one of the two leaves the comparison distorted.
Background Knowledge
You need the concept of seller concessions and cash equivalency, and the distinction between the price effect of a concession and the condition adjustment for the underlying defect. You should also know what deferred maintenance is and that cost to cure is only a starting point for a market-derived condition adjustment.
Real-World Application
An appraiser finds a comparable that closed with a $9,000 roof credit. She confirms the roof was original and failing at closing, restates the price to cash equivalency based on how the local market treats credits, treats the comparable as inferior in condition at sale, and takes care that the two steps do not overlap.
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