Adjustments can be applied to the total sale price or to a unit of comparison. Which method is described as more direct and preferable?
Correct Answer
A) Make all adjustments to the total sale price, then divide by the unit
Adjustments can be made to the total price, a unit of comparison or both, but making all adjustments to the entire property first and then dividing the adjusted price by the relevant unit is described as more direct and preferable.
Why This Is the Correct Answer
Option A is correct because making all adjustments to the entire property first and then dividing the adjusted sale price by the relevant unit is described as the more direct and preferable method. Each adjustment is measured against the whole property that actually sold. The unit of comparison is then derived from a fully adjusted price.
Why the Other Options Are Wrong
Option B: Convert to a unit price first, then adjust each element per unit
Option B, converting to a unit price first and then adjusting each element per unit, is a permitted alternative but is not the method described as more direct and preferable. Adjusting the total price first and then dividing is the preferred sequence.
Option C: Adjust half the elements to the total price and half to the unit price
Option C, adjusting half the elements to the total price and half to the unit price, is not a recognized method. Splitting adjustments arbitrarily between two bases makes the grid inconsistent and hard to support.
Option D: Average the total-price and unit-price results after adjusting both
Option D, averaging the total-price and unit-price results after adjusting both, is not the preferred method. Running both and averaging adds work without making the analysis more direct, and the guidance instead favors adjusting the total price and then dividing.
Adjust whole, then divide
Think 'fix the whole pie, then slice it': adjust the total sale price first, then divide by the unit.
How to use: Use this when a question asks which order of adjusting and converting to units is preferred.
Exam Tip
When asked which adjustment method is more direct, look for the option that adjusts the total property price before dividing by the unit of comparison.
Common Mistakes to Avoid
- -Believing unit-price adjustments are the preferred method
- -Mixing total-price and unit-price adjustments without a consistent basis
- -Averaging two adjustment methods instead of choosing the more direct one
Concept Deep Dive
Analysis
This question tests where adjustments are applied in the sales comparison grid. Adjustments can be made to the total price, to a unit price, or both, but the guidance identifies one approach as more direct. Reason through which method keeps each adjustment tied to the whole property before any unit conversion.
Background Knowledge
A unit of comparison, such as price per square foot, expresses sale prices on a common basis. Adjustments for differences between comparables and the subject can be applied either to the total price or to the unit price. Applying them to the whole property first keeps each adjustment tied to the real transaction.
Real-World Application
An appraiser analyzing comparable houses adjusts each comparable's total sale price for location and condition. After the adjustments, the appraiser divides each adjusted price by living area to get an adjusted price per square foot for the subject.
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
A comparable’s cash-equivalent price is $520,000. Its current-dollar adjustments are −$18,000, +$7,500, and −$4,000, with no others. What is the adjusted price?
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A potential comparable has the same size and quality as the subject but a much better location. What does appraisal guidance say about such a sale?