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?
Correct Answer
B) Comment on it and reflect its contributory value
Fannie Mae requires the appraiser to comment on over-improvements and indicate their contributory value in the sales comparison grid. An over-improvement does not by itself make the property ineligible.
Why This Is the Correct Answer
Option B is correct because Fannie Mae requires the appraiser to comment on over-improvements and indicate their contributory value in the sales comparison adjustment grid. Contributory value reflects what the market will pay for the improvement in that neighborhood, which may be less than its cost. An over-improvement does not by itself make the property ineligible.
Why the Other Options Are Wrong
Option A: Adjust for its full replacement cost new
Option A is wrong because adjusting for full replacement cost new ignores how the market reacts to the over-improvement. Cost does not equal contribution, especially for a feature out of character with the neighborhood.
Option C: Ignore it, since size is not an appraisal factor
Option C is wrong because size is a significant appraisal factor, and ignoring it would misstate the analysis. The over-improvement must be addressed through comment and contributory value.
Option D: Exclude the home from Fannie Mae eligibility
Option D is wrong because an over-improvement does not by itself exclude the home from Fannie Mae eligibility. The guidance calls for comment and contributory value, not exclusion.
Cost is not contribution
An oversized house may cost a lot to build, but the market decides what it adds. Comment on it and show what it contributes.
How to use: Use this phrase whenever a question involves features that exceed neighborhood norms.
Exam Tip
For over-improvement questions, prefer answers about commenting and contributory value over answers that use cost or declare the property ineligible.
Common Mistakes to Avoid
- -Adjusting for the full cost of an over-improvement
- -Assuming an over-improvement makes the loan ineligible
- -Ignoring the size difference instead of commenting on it
Concept Deep Dive
Analysis
This question tests Fannie Mae's treatment of over-improvements. A 4,000 square foot house among 2,000 square foot homes may not receive full market credit for its extra size. The appraiser must comment on the over-improvement and reflect its contributory value in the adjustment grid.
Background Knowledge
An over-improvement is an improvement whose cost or size exceeds what is typical for the neighborhood, so it may contribute less than it cost. Contributory value is the amount an item adds to market value. Appraisers measure it through market evidence rather than cost figures.
Real-World Application
An appraiser values a large custom home in a neighborhood of modest ranch houses. She searches for larger sales in competing areas to measure what the extra square footage actually contributes and explains the over-improvement in her report.
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?
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?
A comparable went under contract two weeks before the effective date. What does Fannie Mae expect about a time adjustment?
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
Leases signed this year show similar homes rent for $2,325 per month with two full baths and $2,200 with one. The subject property has two full baths, and a comparable sale has one. A two-bath home currently advertised for rent is asking $2,400. Market participants quote gross rent multipliers on annual rent. A one-bath home in the area, leased at $2,200 per month, sold last month for $343,200. A contractor has bid $24,000 to add a bathroom to a similar home. What adjustment is indicated for the second bath?
Next Question
An appraiser develops two analyses of the same sales for a 2,050-sf colonial. In the relative comparison, the subject is rated superior to Sale 2, which sold for $396,000, and inferior to Sale 3, which sold for $409,000, and the appraiser concludes $403,000. In the adjustment grid, however, Sale 2's adjusted price is $414,000, higher than both the conclusion and the price of Sale 3. What should the appraiser do next?