An adjustment for a finished basement should be based on:
Correct Answer
C) The market-supported contribution of the difference
Use relevant market-supported basement contribution for the particular comparison. Neither finishing cost, an automatic above-grade rate nor a fixed fraction establishes it. Paired evidence is one possible method, rather than the only permitted support.
Why This Is the Correct Answer
Option C is correct because adjustments must reflect the market's reaction to the difference between properties. The appraiser should use the market-supported contribution of the finished basement for the particular comparison. Paired sales are one way to support it, along with other accepted methods.
Why the Other Options Are Wrong
Option A: The cost of finishing the basement, as shown in contractor bids
Option A bases the adjustment on the cost of finishing the basement from contractor bids. Cost does not equal contribution; buyers may pay more or less than the cost to finish below-grade space.
Option B: The same rate per square foot as above-grade living area
Option B applies the same rate per square foot as above-grade living area. Below-grade space is reported separately and often contributes differently from above-grade area, so the rate needs its own market support.
Option D: Half of the above-grade living-area rate, by convention
Option D uses half of the above-grade rate by convention. A fixed fraction is not market evidence; the contribution must come from how buyers in that market actually react to finished basement space.
Below grade, its own grade
Basement space gets its own line and its own market-supported rate, separate from above-grade area.
How to use: Use this when an answer borrows the above-grade rate or a cost figure for basement space.
Exam Tip
Answers that say adjustments reflect market-supported contribution generally outrank answers based on cost, convention or fixed ratios.
Common Mistakes to Avoid
- -Using finishing cost as the adjustment amount
- -Including basement area in gross living area at the above-grade rate
- -Applying a rule-of-thumb fraction without market support
Concept Deep Dive
Analysis
This question tests the basis for a finished basement adjustment. Like other adjustments, it must reflect the market's reaction to the difference. Cost figures, above-grade rates and fixed fractions are shortcuts that do not by themselves establish what buyers pay.
Background Knowledge
Fannie Mae directs appraisers to report below-grade areas separately from gross living area and adjust for them on their own grid line. The adjustment amount must be market based. Contribution may differ from cost and from above-grade rates.
Real-World Application
A subject has a 900-square-foot finished basement that cost $45,000 to complete. Paired sales in the neighborhood show buyers paid about two-thirds of that cost for similar finished basements. The appraiser uses the market-supported figure on the basement line.
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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