According to the Interagency Appraisal and Evaluation Guidelines, which items should an appraisal’s market conditions discussion include?
Correct Answer
D) Value trends, demand and supply factors and exposure time
The Guidelines say an appraisal should discuss market conditions, including property value trends, demand and supply factors and exposure time; it may also cover concessions, the list-to-sale price ratio and financing availability.
Why This Is the Correct Answer
Option D is correct because the Guidelines say an appraisal should include a discussion of market conditions, including relevant information on property value trends, demand and supply factors and exposure time. These items describe the market in which the property competes. The discussion may also cover concessions, the list-to-sale price ratio and financing availability.
Why the Other Options Are Wrong
Option A: The borrower’s credit score and the loan-to-value ratio
Option A, the borrower's credit score and the loan-to-value ratio, are loan underwriting items, not market conditions. They describe the borrower and the loan rather than the property market.
Option B: The appraiser’s fee and the turnaround time
Option B, the appraiser's fee and turnaround time, are engagement terms between the appraiser and the client. They say nothing about value trends or supply and demand in the market.
Option C: The lender’s underwriting guidelines and pricing
Option C, the lender's underwriting guidelines and pricing, concern loan decisions. They are not part of the market conditions discussion the Guidelines describe.
Trends, supply-demand, exposure
Ask three market questions: which way are values moving, how do supply and demand balance, and how long does it take to sell?
How to use: Use this when identifying what belongs in a market conditions discussion.
Exam Tip
Separate market data from loan or engagement details; market conditions questions point to value trends, supply and demand, and exposure time.
Common Mistakes to Avoid
- -Including borrower credit details in a market conditions discussion
- -Confusing the appraiser's fee or turnaround with market data
- -Treating lender pricing as a market condition
Concept Deep Dive
Analysis
This question tests what the Interagency Appraisal and Evaluation Guidelines expect in an appraisal's market conditions discussion. The focus is on property market data, not loan underwriting or the appraiser's business terms. Pick the option that describes conditions in the real estate market.
Background Knowledge
A market conditions analysis tells the reader whether values are rising, stable or declining and why. It looks at supply and demand balance and how long properties take to sell. This context supports the appraiser's adjustments and value conclusion.
Real-World Application
In a lending appraisal, the appraiser notes that values in the neighborhood rose modestly over the past year, listings are scarce relative to buyer demand, and typical exposure time is short. The appraiser also comments on seller concessions in recent sales.
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?
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