A pair appears to show a lower price for the property with an added feature than for the property without it. Before interpreting this as negative feature contribution, what should the appraiser do?
Correct Answer
A) Investigate the data and controls; the market may discount it or other influences may explain the difference
A lower price for the feature-bearing sale may reflect negative market contribution, confounding, data error or other circumstances. Investigate controls, data and applicability before interpreting it. Do not reverse the sign, set zero or discard the method automatically. The sign of an adjustment applied to a superior comparable is a different concept from the feature’s own contribution sign.
Why This Is the Correct Answer
Option A is correct because a lower price for the feature-bearing sale may reflect a negative market contribution, confounding differences, data errors or other circumstances. The appraiser should check the data, the controls on other differences and the pair's applicability before interpreting it. Value contribution is set by the market, not by cost, so a feature can add less than expected or even detract.
Why the Other Options Are Wrong
Option B: Reverse the sign of the indication, because added features must increase value in each market area and segment
Option B is wrong because reversing the sign assumes added features must increase value in each market area and segment. Some features can carry little or negative contribution in a given market, so the sign should not be flipped without evidence.
Option C: Replace each negative contribution in the analysis with zero
Option C is wrong because replacing each negative contribution with zero discards evidence without investigation. A negative result may be real or may be an error, and only analysis can tell which.
Option D: Prohibit paired analysis for that feature in all assignments
Option D is wrong because prohibiting paired analysis for that feature in all assignments is an overreaction to one odd pair. The proper step is to investigate this pair's data and controls.
Odd pair? Inspect, don't flip
When a pair gives a surprising sign, inspect the data and controls instead of flipping, zeroing or discarding it.
How to use: Use this reminder whenever a paired sale produces an unexpected result.
Exam Tip
Answers that investigate the data usually beat answers that mechanically correct or prohibit a surprising result.
Common Mistakes to Avoid
- -Assuming every added feature adds value
- -Setting surprising results to zero without investigation
- -Abandoning paired analysis because of one unusual pair
Concept Deep Dive
Analysis
This question tests interpreting a paired sale whose result seems backwards. A lower price for the property with an added feature may reflect a real market discount for that feature, or it may come from data errors or uncontrolled differences. The appraiser should investigate before drawing any conclusion.
Background Knowledge
Paired sales analysis relies on sales that differ mainly in one characteristic, so uncontrolled differences can distort the result. Contributory value is what the market pays for an item, which may differ from its cost. For example, a pool may contribute less than its construction cost, or in some markets may not add value.
Real-World Application
Two similar homes sold, and the one with a pool sold for less. On investigation, the appraiser learns the pool home needed a new roof and backed onto a busy road, so the pair did not isolate the pool's contribution.
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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A comparable's sale date, price, and physical characteristics come from public records, but its condition at sale is unknown. The appraiser should:
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A comparable townhouse sold for $300,000. It needs +$34,000 for its smaller living area, −$27,000 for its superior location and −$4,000 for its newer roof, a net adjustment of +$3,000. The appraiser's draft comment calls it the most comparable sale because its net adjustment is 1% of its price. How should this sale's comparability be judged?