A comparable sold for $750,000 with a $25,000 seller concession. Verified market evidence indicates this concession increased the sale price by the full $25,000 compared with an otherwise similar cash-equivalent sale. What is the market-supported adjusted price?
Correct Answer
C) $725,000
The evidence stipulates a $25,000 increase in observed price caused by the concession. Remove that supported effect:750000−25000=$725,000. Adding it reverses the normalization; no adjustment ignores the supplied effect. The concession’s face amount alone would not justify dollar-for-dollar subtraction without evidence of its actual price impact.
Why This Is the Correct Answer
Option C is correct because market evidence shows the concession raised the price by the full $25,000, so a negative adjustment of that amount is made: $750,000 − $25,000 = $725,000. When the market reaction is the full concession amount, a dollar-for-dollar adjustment is acceptable.
Why the Other Options Are Wrong
Option A: Unable to determine without more information
Option A says the price cannot be determined without more information. The question already supplies verified evidence that the concession raised the price by $25,000, which is enough to compute $750,000 − $25,000 = $725,000.
Option B: $775,000
Option B, $775,000, adds the concession ($750,000 + $25,000), which reverses the normalization. The concession inflated the price, so it must be removed: $750,000 − $25,000 = $725,000.
Option D: $750,000
Option D, $750,000, leaves the price unadjusted and ignores the supported $25,000 price effect. The cash-equivalent price is $750,000 − $25,000 = $725,000.
Concessions inflate, so subtract
A seller concession tends to raise the recorded price, so the supported effect is subtracted from the comparable.
How to use: Use it whenever a comparable involves seller-paid costs or credits.
Exam Tip
Look for the phrase that ties the concession to the price effect. If the market effect equals the full concession, subtract it dollar for dollar; otherwise subtract only the supported effect.
Common Mistakes to Avoid
- -Adding the concession instead of subtracting it
- -Subtracting the face amount without evidence of its price impact
- -Leaving concession-inflated prices unadjusted
Concept Deep Dive
Analysis
This question tests the adjustment for a seller concession. The adjustment equals the increase in sale price attributable to the concession, as shown by market evidence. Because the evidence here shows the full $25,000 raised the price, that amount is subtracted to bring the comparable to a cash-equivalent basis.
Background Knowledge
Sales or financing concessions paid by the seller can push the recorded price above what a cash-equivalent sale would bring. The negative adjustment should equal the price increase the appraiser finds attributable to the concession, based on the market. The face amount of a concession is not automatically the adjustment; it depends on the market's reaction.
Real-World Application
A comparable closed with the seller paying a large share of the buyer's closing costs. The appraiser's market analysis shows buyers paid more for that home because of the credit, so the appraiser makes a negative concession adjustment equal to that supported effect.
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