An appraiser adjusts for a comparable’s finished basement. What should the adjustment reflect?
Correct Answer
D) The basement finish’s contribution to market value
An adjustment for a physical characteristic should reflect its marginal, or contributory, effect on value, not simply the cost to reproduce or remove it. Cost can inform the analysis but may differ from what buyers pay.
Why This Is the Correct Answer
Option D is correct because an adjustment for a physical characteristic should reflect its marginal, or contributory, effect on value. Cost can inform the analysis, but what buyers pay for a finished basement may differ from what it costs to create.
Why the Other Options Are Wrong
Option A: The full current cost to finish an equivalent basement
Option A uses the full current cost to finish an equivalent basement. The cost to reproduce a feature may be more or less than what the market pays for it.
Option B: The original cost the seller paid to finish the basement
Option B uses the original cost the seller paid to finish the basement. Historical cost reflects past spending, not the finish's current contribution to market value.
Option C: The cost to remove the basement finish from the house
Option C uses the cost to remove the basement finish from the house. Removal cost does not measure what the finish adds to value in the market.
Adjust for value, not cost
Ask what buyers pay extra for the feature, not what someone paid to build it. Contribution drives the adjustment.
How to use: Use this when choices offer cost-based measures for a feature adjustment.
Exam Tip
Eliminate choices based on reproduction, original or removal cost when the question asks what an adjustment should reflect.
Common Mistakes to Avoid
- -Using full current cost as the adjustment
- -Relying on what the seller originally paid
- -Treating removal cost as a measure of value
Concept Deep Dive
Analysis
This question tests what a physical-characteristic adjustment should measure. The answer is the market's response to the feature, not what it costs to build or remove. Cost may help, but the adjustment must reflect contribution to value.
Background Knowledge
Adjustments in the sales comparison approach should mirror how the market reacts to differences between properties. For physical features, that reaction is the feature's contributory value. Cost data can be a starting point, but market evidence such as paired sales should support the final figure.
Real-World Application
A comparable has a finished basement that cost $40,000 to complete. Market evidence shows buyers in that area pay about $25,000 more for a finished basement, so the appraiser adjusts by the supported contributory amount.
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?
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Previous Question
An appraiser uses paired sales to measure a feature, but the two sales also differ in another characteristic. What must be true for the result to be usable?
Next Question
The subject, a three-bedroom ranch, has five recent sales in its subdivision. Sale A was a transfer from a mother to her son; it was never listed and closed 14% below the other sales. Sale B was a resale by a relocation company that had bought the home from a transferred employee; it was listed on the MLS for 45 days, sold to an unrelated buyer with no concessions, and closed within the range of the other sales. How should the appraiser treat these two sales?