A comparable included a $5,000 seller-paid closing-cost concession. No evidence of its price effect is provided. What is required before determining the concession adjustment?
Correct Answer
D) Investigate and support the concession’s actual market price effect
Seller concession cost is not automatically the adjustment. Verify whether and how much the concession affected the comparable's transaction price and adjust for the supported market effect, which may be less than the face amount or zero. The concession's face amount alone does not justify subtracting it dollar for dollar, and Fannie Mae does not accept positive (upward) concession adjustments.
Why This Is the Correct Answer
Option D is correct because the appraiser must investigate and support the concession's actual market price effect before setting the adjustment. Fannie Mae requires comparables with concessions to be adjusted to reflect the impact, if any, on the sales price based on the market at the time of sale. That effect can vary with the amount of the concession and the market, so it may be less than the $5,000 face amount or zero.
Why the Other Options Are Wrong
Option A: Subtract the full $5,000 from the sale price as the adjustment
Option A is wrong because subtracting the full $5,000 from the sale price assumes the concession's face amount equals its price effect. The adjustment must reflect the supported market impact, which may be less than $5,000 or zero.
Option B: Add $5,000 to the sale price, because the buyer benefited
Option B is wrong because adding $5,000 to the sale price moves the adjustment in the wrong direction. A concession may have inflated the recorded price, and Fannie Mae does not accept positive (upward) concession adjustments.
Option C: Treat the concession as proof the sale is unusable
Option C is wrong because a concession is not proof that the sale is unusable. The sale can still serve as a comparable when the concession is verified and its price effect is analyzed and supported.
Face amount is not effect
What the seller paid and what the price rose by are two different numbers. The adjustment follows the second number, supported by the market.
How to use: Use this contrast whenever a question offers a dollar-for-dollar concession adjustment as an answer.
Exam Tip
When no evidence of a concession's price effect is given, choose the answer about investigating and supporting the effect. Dollar-for-dollar deductions and upward adjustments are classic distractors.
Common Mistakes to Avoid
- -Deducting the full concession amount automatically
- -Making an upward adjustment for a seller concession
- -Rejecting the comparable because it had a concession
Concept Deep Dive
Analysis
This question tests what an appraiser must do before adjusting a comparable for a $5,000 seller-paid closing-cost concession when no evidence of its price effect is given. The face amount of the concession is not automatically the adjustment. The appraiser must investigate and support the concession's actual effect on the comparable's price.
Background Knowledge
The effect of sales or financing concessions on price depends on the market and on the size of the concession. Appraisers estimate this effect from market evidence, such as comparing sales with and without concessions, rather than mechanically deducting the dollar amount paid.
Real-World Application
A comparable closed with a $5,000 seller credit toward closing costs. The appraiser reviews local sales with and without similar credits and finds the market reaction was smaller than the credit, so the supported downward adjustment is less than the face amount.
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