A single-family home with a permitted garage apartment is being appraised, and a comparable sale has no apartment. Leases in the neighborhood show homes with a garage apartment rent for $2,950 per month and similar homes without one for $2,350. Leased separately, a garage apartment rents for about $850 per month. The owner pays about $100 per month for the apartment's utilities. The apartment cost $84,000 to build six years ago. Rented single-family homes in the neighborhood sell for about 150 times their monthly rent. What adjustment amount is indicated for the garage apartment?
Correct Answer
C) $90,000
A rent difference attributable to a feature can be capitalized into an adjustment. The difference in market rent for the whole property is $2,950 − $2,350 = $600 per month, and at the neighborhood's monthly gross rent multiplier of 150 this is $90,000. $127,500 capitalizes the apartment's stand-alone rent, $75,000 wrongly deducts utilities from a gross rent figure, and $84,000 is historical cost.
Why This Is the Correct Answer
Option C is correct because homes with a garage apartment rent for $600 more per month than similar homes without one ($2,950 − $2,350). Rented homes sell for about 150 times monthly rent, so the apartment's contribution is $600 × 150 = $90,000.
Why the Other Options Are Wrong
Option A: $75,000
Option A, $75,000, subtracts the $100 utility cost first: ($600 − $100) × 150. A gross rent multiplier is applied to gross rent, so expenses are not deducted; the result is $600 × 150 = $90,000.
Option B: $84,000
Option B, $84,000, is what the apartment cost to build six years ago. Historical cost is not the market's reaction; the rent evidence indicates $90,000.
Option D: $127,500
Option D, $127,500, capitalizes the apartment's $850 stand-alone rent ($850 x 150). The 150 multiplier comes from sales of whole homes rented as single units, so it applies to the whole-property rent difference of $2,950 - $2,350 = $600, which gives $90,000.
Whole-property rent gap times GRM
Compare rent for the property with and without the feature, then multiply that gross gap by a multiplier in the same time unit.
How to use: Use this when a stem gives rents and a gross rent multiplier for a feature adjustment.
Exam Tip
A gross rent multiplier goes with gross rent; if a stem mentions expenses, they do not belong in a gross multiplier calculation.
Common Mistakes to Avoid
- -Capitalizing the unit's stand-alone rent instead of the whole-property difference
- -Deducting expenses before applying a gross multiplier
- -Using construction cost as the contribution
Concept Deep Dive
Analysis
The question tests capitalization of a rent difference with a gross rent multiplier. The candidate must use the difference in gross rent for the whole property with and without the feature, apply the monthly multiplier to a monthly figure and ignore cost and expense data.
Background Knowledge
Capitalization of a rent difference converts the extra rent a feature produces into a value difference. For small residential properties, appraisers commonly use a gross rent multiplier derived from sales of rented homes, applied to gross rent in the same time unit as the multiplier.
Real-World Application
In a neighborhood where many owners rent their homes, an appraiser values a house with a garage apartment. Paired rentals show the extra rent the whole property earns, and the appraiser applies the neighborhood monthly multiplier to measure the 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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