A sale in which the buyer assumed the seller's below-market loan requires:
Correct Answer
D) Analyze the verified financing terms and their actual effect on the sale price
A favorable assumed loan can affect a transaction’s price, but its existence does not prove the amount of a premium. Verify its terms and actual market price effect before a cash-equivalency adjustment; loan balance or computed financing benefit alone does not establish that adjustment.
Why This Is the Correct Answer
Option D is correct because a below-market assumed loan may affect the sale price, and an adjustment for financing terms may be necessary. The amount must come from the verified terms and the actual market price effect, not from the loan balance or a computed financing benefit alone.
Why the Other Options Are Wrong
Option A: Subtract the full loan balance from the sale price
Option A, subtracting the full loan balance from the sale price, confuses the loan amount with the value of favorable financing. The balance is part of how the price was paid, not the premium the buyer paid for good terms.
Option B: Accept the recorded price as market value without investigating the financing terms
Option B, accepting the recorded price as market value without investigating the financing terms, ignores that below-market financing can inflate the price. The terms must be investigated to see whether a cash-equivalency adjustment is needed.
Option C: Exclude the sale because it involved an assumed loan
Option C, excluding the sale because it involved an assumed loan, discards evidence unnecessarily. A sale with an assumed loan can be used if the financing is verified and its price effect is analyzed.
Verify terms, measure effect
Favorable financing raises a question about price; market analysis answers how much.
How to use: Use this on questions involving assumed loans, seller financing or other non-market terms.
Exam Tip
Choose the answer that analyzes verified terms and their actual price effect over answers that subtract a loan balance, ignore the terms or discard the sale.
Common Mistakes to Avoid
- -Subtracting the loan balance as if it were a premium
- -Ignoring favorable financing terms
- -Excluding sales only because a loan was assumed
Concept Deep Dive
Analysis
This question tests how to handle a comparable in which the buyer assumed a below-market loan. Favorable financing can raise the price a buyer pays, but its existence does not prove the size of any premium. The appraiser must verify the terms and analyze their actual effect on price.
Background Knowledge
When a buyer assumes a loan with a rate below market, the buyer may pay more for the property because of the favorable financing. Cash equivalency analysis estimates the price that would have been paid with typical market financing, based on market evidence of the effect.
Real-World Application
A comparable sold with an assumable loan at a rate well below current market rates. The appraiser verifies the loan terms and looks for paired sales showing whether buyers paid more for assumable financing before deciding on any adjustment.
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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Previous Question
A townhouse in the subject's development sold for $365,000 three weeks ago. It backs onto a wooded greenbelt, while the subject backs onto a neighbor's yard, but its original bathrooms are dated, while the subject's were remodeled last year. Interviews with local agents and the development's recent sales indicate buyers react to the greenbelt setting and to remodeled bathrooms by about the same amount. In a relative comparison analysis, what does this sale indicate for the subject?
Next Question
About a third of the lots in the subject's neighborhood hold a house plus a legal second unit; the subject has a second unit and Comparable 1 does not. Forty current leases show second units rent for about $650 per month, while the main houses rent for the same amount whether or not the lot has a second unit. Sales of rented properties in the neighborhood, with and without second units, indicate a monthly gross rent multiplier of 120 on total rent. Listings of rented properties ask about 130 times their monthly rent. The one paired sale that differs by a second unit shows a $62,000 difference, but the property with the second unit was also in much poorer condition, and no market data measure that condition difference. A contractor estimates $95,000 to build a similar unit. What adjustment for the second unit does the evidence best indicate?