A listing service record notes seller-paid closing costs. Why does this matter to the comparable?
Correct Answer
A) The recorded price may exceed cash-equivalent value
Seller-paid costs can affect the sale price and therefore call for verification and cash-equivalency analysis. Determine the concession’s actual effect on price from relevant market evidence; it is not automatically the nominal amount and may be zero. A concession does not automatically make a transaction unusable. Do not ignore material terms or mechanically deduct every paid cost; analyze and support any adjustment.
Why This Is the Correct Answer
Option A is correct because seller-paid closing costs can be reflected in a higher recorded sale price, so the reported price may exceed the cash-equivalent value. Fannie Mae requires comparables with sales or financing concessions to be adjusted for their impact, if any, on the sales price based on the market at the time of sale. The amount of that effect must be supported by market evidence and may be less than the face amount or even zero.
Why the Other Options Are Wrong
Option B: The sale must be excluded as a non-market transaction
Option B is wrong because a concession does not by itself make the sale a non-market transaction that must be excluded. The sale can still be used when the concession is verified and its price effect is analyzed and adjusted for as supported.
Option C: The concession increases the property's living area
Option C is wrong because a concession is a financial term of the sale and has nothing to do with the property's living area. Closing-cost assistance changes the terms of the transaction, not the physical size of the house.
Option D: Concessions are disregarded in the sales comparison
Option D is wrong because concessions are not disregarded in the sales comparison approach. Fannie Mae requires comparables with sales or financing concessions to be adjusted to reflect their impact, if any, on the sales price.
Concession inflates the price tag
Think of a concession as a hidden sweetener baked into the price: the recorded number may be puffed up by it. Your job is to measure how much, if any, the market actually paid for that sweetener.
How to use: Use this image whenever a comparable shows seller-paid costs to remind yourself to verify and analyze cash equivalency.
Exam Tip
When a question mentions seller-paid costs or financing concessions, look for the answer about cash equivalency and supported analysis. Answers that exclude the sale outright or ignore the concession are usually distractors.
Common Mistakes to Avoid
- -Excluding any sale that has a concession
- -Ignoring the concession because the sale already closed
- -Deducting the full face amount without market support
Concept Deep Dive
Analysis
This question tests why seller-paid closing costs matter when a sale is used as a comparable. The key idea is that a concession can push the recorded price above what the property would have sold for on cash-equivalent terms. The appraiser therefore verifies the concession and analyzes its actual market effect rather than ignoring it or excluding the sale.
Background Knowledge
Sales and financing concessions, such as seller-paid closing costs or interest rate buydowns, can lead buyers to pay a higher nominal price than they would on cash-equivalent terms. Cash-equivalency analysis estimates the price the comparable would have achieved without the concession, based on how the market actually reacts to such terms.
Real-World Application
An appraiser finds an MLS record showing the seller paid a portion of the buyer's closing costs on a recent comparable. The appraiser confirms the terms with the listing agent and studies similar sales with and without concessions to estimate how much, if any, of the concession was reflected in the price before adjusting.
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?
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?
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