A recorded transfer was a gift between relatives at a nominal price. How should it be treated in the sales comparison approach?
Correct Answer
B) Do not use it, since it is not a market value transaction
If a sale does not meet the conditions of a market value transaction, it should not be used as a comparable sale in the comparative sales approach.
Why This Is the Correct Answer
Option B is correct because a gift between relatives at a nominal price is not a market value transaction. If a sale does not meet the conditions of a market value transaction, it should not be used as a comparable sale in the sales comparison approach.
Why the Other Options Are Wrong
Option A: Use it with a percentage adjustment for the family relationship
Option A suggests using the gift with a percentage adjustment for the family relationship. A nominal-price gift does not reflect market behavior at all, so it should be excluded rather than adjusted.
Option C: Use it, since recorded prices are presumed to be market value
Option C claims recorded prices are presumed to be market value. Recording a transfer does not make its price market value; the transaction conditions must be verified, and a family gift fails them.
Option D: Average it with the arm’s length sales to reduce its weight
Option D proposes averaging the gift with the arm's length sales to reduce its weight. Averaging would still let a non-market price distort the indication, so the transfer should not be used as a comparable.
Not market, not a comp
If a sale fails the market value conditions, it is screened out of the comparable set rather than adjusted or averaged in.
How to use: Apply it whenever a question describes a gift, family transfer or other nominal-price deed.
Exam Tip
Watch for answers that try to rescue a non-market sale through adjustments or averaging. The expected response is to exclude it as a comparable.
Common Mistakes to Avoid
- -Assuming any recorded price reflects market value
- -Trying to adjust a gift transfer for the family relationship
- -Averaging a non-market sale with arm's length sales
Concept Deep Dive
Analysis
This question tests whether a non-market transaction can serve as a comparable. A gift between relatives at a nominal price does not meet the conditions of a market value transaction, such as typically motivated parties acting at arm's length. A sale that fails those conditions should not be used as a comparable sale.
Background Knowledge
Market value assumes a transaction between typically motivated, informed parties acting in their own interests, with reasonable exposure and no special pressure. Transfers between relatives, gifts, and other non-arm's length deals usually do not meet these conditions. Appraisers verify sale conditions before selecting comparables.
Real-World Application
While researching public records, an appraiser finds a house next to the subject that transferred from a parent to a child for a nominal amount. After verifying the circumstances, the appraiser excludes it from the comparable grid and selects arm's length sales 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?
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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?
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