Adjustments are applied to the comparable rather than the subject in order to:
Correct Answer
D) Normalize observed comparable prices to the subject’s characteristics as evidence of its unknown value
The comparable’s known transaction price is normalized to the subject’s relevant characteristics to obtain evidence about the subject’s unknown value. This comparative model does not imply a subject is mathematically impossible to adjust or that every comparable is inferior.
Why This Is the Correct Answer
Option D is correct because adjusting the comparable normalizes its known price to the subject's characteristics. Each adjusted sale price then estimates what the comparable would have sold for with the subject's significant characteristics, and so becomes a value indicator for the subject's unknown value.
Why the Other Options Are Wrong
Option A: Avoid entering the subject into any mathematical calculation
Option A says the purpose is to avoid entering the subject into any mathematical calculation. The subject's characteristics are used throughout the analysis; comparables are adjusted because their prices are known and the subject's value is not.
Option B: Reflect that each comparable is inferior to the subject property
Option B says adjustments reflect that each comparable is inferior to the subject. Comparables can be superior, inferior or similar, which is why adjustments can be upward or downward.
Option C: Satisfy a statutory rule that forbids other comparative models in appraisals made for federally related loans
Option C says the purpose is to satisfy a statutory rule that forbids other comparative models for federally related loans. Adjusting comparables comes from appraisal methodology, not from a statute that forbids other models.
Known price, unknown value
Adjust what you know, the comparable's price, to estimate what you do not know, the subject's value.
How to use: Use this when asked why adjustments go to comparables.
Exam Tip
Answers that say all comparables are inferior or cite an invented statute misstate the reason for adjusting comparables.
Common Mistakes to Avoid
- -Applying adjustments to the subject instead of the comparable
- -Assuming comparables are inferior by definition
- -Believing a statute dictates the adjustment model
Concept Deep Dive
Analysis
This question tests the reason adjustments are made to the comparables rather than the subject. The comparables have known sale prices, while the subject's value is unknown, so each comparable's price is adjusted to what it would have been if it had the subject's characteristics.
Background Knowledge
In the sales comparison approach, adjusted comparable prices estimate what each comparable would have sold for if it had the subject's significant characteristics. Each adjusted price then serves as an indication of the subject's value. This is why adjustments are applied to the comparables and not to the subject.
Real-World Application
An appraiser finds a comparable that sold for $350,000 but lacks the subject's finished basement. The appraiser adjusts the comparable upward to estimate what it would have sold for with a similar basement, producing an indication of the subject's value.
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
When reconciling the adjusted prices of several comparables, why should an appraiser generally avoid a simple arithmetic average?
Next Question
Four sales are rated overall against a 2,000-square-foot colonial being appraised. Sale 1 sold for $455,000 and is inferior. Sale 2 sold for $459,000 and is superior, but verification shows it was a sale between family members at a price below market. Sale 3 sold for $468,000 and Sale 4 for $481,000; both are superior. Which price sets the upper limit of the subject's value?