A potential comparable has the same size and quality as the subject but a much better location. What does appraisal guidance say about such a sale?
Correct Answer
B) A large location difference may remove it from consideration as a comparable
Location has such a profound influence on value that a significant locational difference may remove an otherwise similar property from consideration. Smaller location differences can be adjusted, preferably with paired sales.
Why This Is the Correct Answer
Option B is correct because location has such a profound influence on value that a significant locational difference may remove an otherwise similar property from consideration as a valid comparable. Physical similarity does not offset a major location gap. Smaller location differences can be adjusted, preferably with paired sales.
Why the Other Options Are Wrong
Option A: Location differences do not affect comparability when the houses match
Option A says location differences do not affect comparability when the houses match. That is wrong because location is one of the strongest influences on value, and a significant location difference can disqualify a physically similar sale.
Option C: It must be used, since physical similarity outweighs location
Option C says the sale must be used because physical similarity outweighs location. This reverses the guidance: a large location difference may remove the sale from consideration despite physical similarity.
Option D: It can be used if its price is adjusted by a standard 10%
Option D says the sale can be used if its price is adjusted by a standard 10%. There is no standard 10% location adjustment; adjustments must be market supported, and a large location difference may make the sale unusable.
Location, location, location
The old real estate saying reminds you that location can matter more than a matching floor plan.
How to use: Use this when a comparable matches physically but sits in a very different location.
Exam Tip
Be cautious of answers offering a fixed percentage location adjustment; adjustments need market support, and large location gaps can disqualify a sale.
Common Mistakes to Avoid
- -Treating physical similarity as enough to make a sale comparable
- -Applying a flat percentage for location without market support
- -Assuming any sale must be used once it is found
Concept Deep Dive
Analysis
This question tests how strongly location influences comparability. Even when size and quality match, a large locational difference can disqualify a sale. Reason from the principle that location has a profound effect on real property value.
Background Knowledge
Location reflects neighborhood, access, amenities and external influences that buyers pay for. Because these factors strongly affect price, appraisers look first for comparables in similar locations. Modest location differences can be adjusted with market evidence such as paired sales.
Real-World Application
An appraiser finds a sale of an identical model home in a waterfront neighborhood several miles from an inland subject. Because buyers pay a large premium for the waterfront setting, the appraiser looks for sales in the subject's own area instead.
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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