A home with an in-ground pool is in an area where pools are not typical. How does Fannie Mae describe it?
Correct Answer
D) It may be an over-improvement, valued at contributory value
An over-improvement is larger or costlier than typical for the neighborhood; a pool where pools are not typical may be one. It does not by itself make the property ineligible, and only its contributory value is reflected.
Why This Is the Correct Answer
Option D is correct because Fannie Mae states that a home with an in-ground pool in an area where pools are not typical may be considered an over-improvement. An over-improvement is larger or costlier than typical for the neighborhood, and only its contributory value is reflected in the opinion of value. The word may matters, because the appraiser still has to look at market reaction to the feature.
Why the Other Options Are Wrong
Option A: It is ineligible for purchase by Fannie Mae
Option A says the property is ineligible for purchase by Fannie Mae, but an over-improvement does not by itself make a property ineligible. It affects how the feature is valued, not whether the loan can be delivered.
Option B: It must be valued at the pool’s full cost
Option B says the pool must be valued at its full cost, but cost does not equal value. For an over-improvement, the appraiser reflects only the pool's contributory value, which may be well below what it cost to build.
Option C: It is outside the neighborhood price range by definition
Option C says the home is outside the neighborhood price range by definition, but a pool does not automatically push a property outside the price range. Whether the home falls outside the range depends on market value evidence, not on the presence of one atypical feature.
Cost is not contribution
An atypical feature is worth what buyers in that neighborhood will pay for it, not what it cost to install.
How to use: Use this whenever a feature is unusual for the neighborhood and an answer choice equates value with cost.
Exam Tip
When a feature is atypical for the area, look for the answer that mentions over-improvement and contributory value rather than eligibility or full cost.
Common Mistakes to Avoid
- -Adding the pool's full installation cost to the value
- -Assuming an over-improvement makes the property ineligible for financing
- -Assuming one atypical feature by itself places the home outside the price range
Concept Deep Dive
Analysis
This question tests the concept of an over-improvement as Fannie Mae applies it to features that are atypical for the neighborhood. The reasoning is that a pool where pools are not typical may cost more than buyers in that market will pay for, so the appraiser reflects only what the feature contributes to value. The presence of such a feature is a valuation issue, not an eligibility bar.
Background Knowledge
An over-improvement is an improvement that is larger, costlier or more elaborate than is typical for the market, so its cost exceeds the value it adds. Under the principle of contribution, a component is worth what it adds to overall value, not what it cost. Appraisers measure that contribution through market evidence such as paired sales.
Real-World Application
An appraiser inspects a modest ranch home with a new $60,000 in-ground pool in a subdivision where almost no homes have pools. Paired sales show buyers pay only a small premium for pools there, so the appraiser adjusts for the pool's contributory value and comments that it is an over-improvement for the area.
More Market Questions
In market area analysis, what characteristic distinguishes a district from a neighborhood?
Under USPAP Standards Rule 1-3(a), which item must an appraiser identify and analyze when necessary for credible results in a market value assignment?
How does the Fannie Mae Selling Guide define a neighborhood?
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An appraiser is asked for a retrospective value opinion as of three years ago. When must the appraiser meet the Competency Rule?
Can mixed land uses in a residential neighborhood ever enhance home values, according to Fannie Mae?
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