A subject sits in a homogeneous subdivision with too few recent sales, so the appraiser uses sales from a neighborhood several miles away that has different external influences. Under Fannie Mae's Selling Guide and general appraisal principles, what follows for the sales comparison grid?
Correct Answer
A) A supported location adjustment, likely a more significant one
Fannie Mae prefers comparables from the same neighborhood and notes that when that is not possible, neighborhood or location adjustments may be needed for sales that do not share the same characteristics or externalities. General appraisal principles add that as the geographic range of comparable sales broadens, the location adjustment usually becomes more significant. Physical similarity or a shared price range does not show that location influences are the same, and small lot-level differences are what to expect within a homogeneous neighborhood, not across distant ones.
Why This Is the Correct Answer
Option A is correct because Fannie Mae notes that sales outside the neighborhood that do not share the same characteristics or externalities may need neighborhood or location adjustments. General appraisal principles add that as the geographic range of comparables broadens, the location adjustment usually becomes more significant.
Why the Other Options Are Wrong
Option B: No location adjustment, provided the homes are physically similar
Option B skips the location adjustment because the homes are physically similar, but physical similarity does not remove differences in external influences between the two neighborhoods.
Option C: No location adjustment, provided both areas share one price range
Option C skips the location adjustment because both areas share a price range, but overlapping prices do not show that the neighborhoods share the same externalities that affect value.
Option D: A small adjustment at most, as for a lot near a park or cul-de-sac
Option D limits the adjustment to something like a lot near a park or cul-de-sac, but that size of difference fits a homogeneous neighborhood; as comparables come from farther away, the adjustment usually becomes more significant.
Farther comps, bigger location gap
The farther you reach for comparables, the more location tends to differ, so expect the location adjustment to grow with distance.
How to use: Use this when a question describes comparables drawn from outside the subject's neighborhood.
Exam Tip
If comparables come from another neighborhood with different influences, look for an answer that calls for a supported location adjustment.
Common Mistakes to Avoid
- -Skipping location adjustments because homes look alike
- -Assuming similar price ranges mean similar locations
Concept Deep Dive
Analysis
The question tests how widening the search area affects location adjustments. The judgment is that different external influences in a distant neighborhood call for a location adjustment, typically a larger one than within the subject's neighborhood.
Background Knowledge
Neighborhood analysis defines the area subject to the same influences as the subject and the area from which to draw comparables. Sales inside that area share its externalities, while sales from other areas may differ, so location becomes an element of comparison that needs market support.
Real-World Application
In a small subdivision with no recent sales, an appraiser uses sales from a neighborhood near a busy commercial corridor several miles away. Paired sales show homes near the corridor sell for less, so the appraiser makes a supported upward location adjustment to those comparables.
More Market Questions
In market area analysis, what characteristic distinguishes a district from a neighborhood?
Under USPAP Standards Rule 1-3(a), which item must an appraiser identify and analyze when necessary for credible results in a market value assignment?
How does the Fannie Mae Selling Guide define a neighborhood?
Several homes in a neighborhood are vacant and boarded up. Which market force does Fannie Mae classify this as?
Infrastructure investment such as a new interchange typically affects nearby land by:
A city raises property tax rates and tightens building regulations. Which market force does Fannie Mae classify these as?
An appraiser believes, without market evidence, that a nearby group home lowers values. What does Fannie Mae require?
Which three categories are used to report the supply of properties in a Fannie Mae neighborhood section?
An appraiser is asked for a retrospective value opinion as of three years ago. When must the appraiser meet the Competency Rule?
Can mixed land uses in a residential neighborhood ever enhance home values, according to Fannie Mae?
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