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
Why this is correct: Seller concessions, like paid closing costs, can inflate the sale price because the buyer agrees to a higher price in exchange for the concession. The recorded price may not reflect the cash-equivalent value of the property alone. Why the other choices are wrong: "The sale must be excluded as a non-market transaction" is wrong; concessions are common in market transactions but require adjustment. "The concession increases the property's living area" is false; concessions are financial, not physical. "Concessions are disregarded in the sales comparison" is incorrect; they must be analyzed and adjusted. Exam tip: Always adjust comparable sales for concessions to estimate cash-equivalent value.
Why This Is the Correct Answer
The recorded price may exceed cash-equivalent value because the buyer traded a higher price for the seller's payment of costs. Recognizing that possibility is what triggers the cash equivalency analysis, and the word may is appropriate because the effect must be measured rather than assumed. Restating the price keeps the comparable on the same footing as sales without concessions. The corrected figure then supports every subsequent adjustment.
Why the Other Options Are Wrong
Option B: The sale must be excluded as a non-market transaction
Concessions are ordinary features of arm's length transactions, particularly in slower markets and entry-level segments, and excluding every sale carrying one would eliminate much of the available data. A distortion that can be quantified is adjusted rather than discarded. Exclusion is reserved for sales whose terms cannot be verified or whose distortions cannot be measured.
Option C: The concession increases the property's living area
Concessions are financial arrangements and have no effect whatsoever on the physical dimensions of the property. Living area is measured from the structure, not from the settlement statement. The option pairs an unrelated physical concept with a financial fact to test whether the candidate is reading carefully.
Option D: Concessions are disregarded in the sales comparison
Concessions must be analyzed and, where they affected price, adjusted for, because ignoring them leaves an inflated price driving the entire grid row. Lender and secondary-market guidelines separately require concessions to be identified and analyzed. Disregarding them would produce systematically overstated comparables in any market where concessions are common.
Read the Whole Listing
The closed price is the headline; the concession is the footnote that changes what the headline means. Always read the listing remarks and the settlement terms before putting a sale in the grid.
How to use: When a stem mentions seller-paid costs, buydowns, or credits, answer that the recorded price may exceed cash-equivalent value. Then remember the adjustment is downward and belongs before physical comparison.
Exam Tip
Distinguish the concession's amount from its effect on price. In a market where every sale carries concessions, the effect may be materially less than the nominal figure.
Common Mistakes to Avoid
- -Using a closed price without checking the listing record for concessions
- -Deducting the full nominal concession without testing market reaction
- -Applying physical adjustments before restating the price to cash equivalency
Concept Deep Dive
Analysis
A seller concession is anything of value the seller gives the buyer outside the real estate itself, and paid closing costs are the most common form. The economics are straightforward: a buyer who needs several thousand dollars of costs covered will typically agree to a correspondingly higher contract price, because the seller must net the same amount. The recorded price therefore overstates what the real estate alone commanded, and the appraiser's task is to restate it to cash equivalency before the sale enters the grid. Two refinements matter. The adjustment measures the concession's effect on price rather than its nominal amount, and in markets where concessions are near universal the market may have repriced around them so that the effect is less than dollar for dollar. And the analysis belongs among the transactional adjustments, applied before any physical or locational comparison, because every later adjustment operates on the price. Listing service records flagging concessions are one of the most useful verification sources available, which is why an appraiser should read the full listing history rather than only the closed price.
Background Knowledge
You need the definition of seller concessions, the concept of cash equivalency, and the standard sequence placing transactional adjustments before property adjustments. You should also know that listing service records and settlement statements are primary verification sources and that the adjustment measures the effect on price rather than the nominal concession amount.
Real-World Application
An appraiser reviewing four sales finds three with seller-paid closing costs disclosed in the listing remarks. She pairs them against two clean sales in the same subdivision, concludes the market absorbed roughly eighty percent of concessions into price, adjusts accordingly, and documents the paired analysis.
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