Contractor bids are available for deferred maintenance. What caveat applies when using them to support a sales-comparison condition adjustment?
Correct Answer
C) Repair cost may inform the analysis but need not equal the market price effect
A contractor bid estimates repair cost. Market participants may react differently because of risk, inconvenience, urgency or other conditions. Use the bid as relevant evidence, but support the market adjustment rather than mechanically equating it with cost. Neither universal halving nor an automatic cost-equals-value rule follows.
Why This Is the Correct Answer
Option C is correct because a contractor bid estimates repair cost, while the adjustment should reflect the market price effect of the condition. Buyers may react more or less than the cost because of risk, inconvenience, urgency or other factors. Estimated cost may or may not equal market value, so the bid informs but does not dictate the adjustment.
Why the Other Options Are Wrong
Option A: The bid must be reduced by half under a national guideline
Option A claims the bid must be reduced by half under a national guideline. No such national halving rule exists; the adjustment should be supported by market evidence rather than a fixed fraction of cost.
Option B: A contractor bid proves the price effect of the condition without any market analysis
Option B says a contractor bid proves the price effect of the condition without any market analysis. A bid measures repair cost, which may or may not equal the market's reaction, so market support is still needed.
Option D: Cost and contributory value are the same for repairs
Option D states that cost and contributory value are the same for repairs. Contribution is measured by the market's reaction, and cost can be higher or lower than what buyers are willing to pay.
Bid is cost, not price
A contractor's bid tells you what the fix costs; the market tells you what the condition is worth. Keep the two separate in your head.
How to use: Use this when an answer choice equates repair cost with the condition adjustment.
Exam Tip
Look for the choice that lets cost inform the analysis while still requiring market support for the adjustment.
Common Mistakes to Avoid
- -Using the repair bid as the adjustment without testing it against the market
- -Applying an arbitrary percentage reduction to the bid
- -Assuming buyers discount a property by exactly the cost of repairs
Concept Deep Dive
Analysis
This question tests the difference between the cost of a repair and the market's reaction to the condition. Contractor bids are useful evidence, but a sales-comparison adjustment must reflect how buyers actually price the condition. The right answer keeps the bid as relevant evidence without treating it as the adjustment itself.
Background Knowledge
Under the principle of contribution, a component or condition is worth what it adds to or subtracts from market value, not what it costs. Cost-based adjustments are widely used but are not market derived on their own. Appraisers use cost as one input and test it against market evidence.
Real-World Application
A comparable sold with a worn roof, and a roofer bids $12,000 to replace it. The appraiser reviews sales of similar homes with and without roof issues to see how buyers actually priced the condition, using the bid as one piece of 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?
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?
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