Market evidence confirms the comparable has a positive location premium relative to the subject. What direction removes that premium from the comparable?
Correct Answer
A) A downward comparable-price adjustment.
For a supported positive location advantage of the comparable, adjust its price downward toward the subject. A superior location label alone would not quantify the amount. A sale can remain useful if its differences and adjustments are credibly supported.
Why This Is the Correct Answer
Option A is correct because when a characteristic of the comparable is superior to the subject's, the adjustment to the comparable sale price is negative. Removing a supported location premium means deducting it from the comparable's price so it reflects the subject's location. The amount still must be supported by market evidence.
Why the Other Options Are Wrong
Option B: An upward comparable-price adjustment.
Option B, an upward comparable-price adjustment, goes in the wrong direction. Adding to the price of a comparable that already has a better location would widen the difference instead of removing the premium.
Option C: No adjustment, since location is qualitative.
Option C says no adjustment is needed because location is qualitative. Here market evidence confirms a positive location premium, and a supported location difference can be adjusted for quantitatively.
Option D: Exclusion of the better-located sale.
Option D, excluding the better-located sale, is not required. A sale can remain useful when its differences are credibly supported and adjusted.
CBS: Comp Better, Subtract
If the comparable is better, subtract from its price; if the comparable is inferior, add.
How to use: Use this whenever you need the sign of an adjustment to a comparable.
Exam Tip
Identify which property is superior before choosing a sign, and remember that the adjustment is applied to the comparable, not the subject.
Common Mistakes to Avoid
- -Adding to a superior comparable's price
- -Adjusting the subject instead of the comparable
- -Discarding a useful sale instead of adjusting for a supported difference
Concept Deep Dive
Analysis
This question tests the direction of adjustments in the sales comparison approach. Adjustments are made to the comparable's price toward the subject. When the comparable is superior in a characteristic, its price is adjusted downward to reflect what it would have sold for with the subject's characteristic.
Background Knowledge
Adjustments to a comparable sale price are made toward, or relative to, the subject property. A superior comparable characteristic produces a negative adjustment; an inferior one produces a positive adjustment. Location is often one of the most significant adjustments and should be supported by market data.
Real-World Application
A comparable sits on a quiet cul-de-sac while the subject backs onto a busy road. Paired data in the neighborhood support a location premium, so the appraiser makes a downward location adjustment to the comparable.
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?
People Also Study
Real Estate Market
13.6% of exam
Property Description
11.8% of exam
Land or Site Valuation
4.5% of exam
Cost Approach
13.6% of exam
Income Approach
8.2% of exam