An appraiser finds a recent new home whose indicated price combines the separate vacant lot purchase with the contract price for building the house, as is common in construction-to-permanent loans. How may this transaction be used in a Fannie Mae appraisal?
Correct Answer
D) As added support, not as one of the three closed sales
Fannie Mae does not allow the appraiser to create a comparable sale by combining a vacant land sale with the contract price for the improvements. Such transactions, often completed as part of a construction-to-permanent loan, cannot be used to meet the minimum of three closed comparables, but they may be included as additional support with appropriate commentary.
Why This Is the Correct Answer
Option D is correct because Fannie Mae states these combined lot-plus-construction transactions cannot be used to meet the required minimum of three closed comparables. They may, however, be included as additional support with appropriate commentary. These transactions are often part of a construction-to-permanent loan.
Why the Other Options Are Wrong
Option A: As one of the three required closed comparables
Option A is wrong because it uses the transaction as one of the three required closed comparables. Fannie Mae does not allow a lot sale plus construction contract to count toward that minimum.
Option B: As a replacement for the subject’s prior sale history
Option B is wrong because a transaction involving a different property cannot replace the subject's prior sale history. The subject's own sale history is a separate reporting item.
Option C: As a listing, since the house was built under contract
Option C is wrong because it treats the transaction as a listing. A completed lot purchase and construction contract is not a listing of a property offered for sale.
Lot plus build is support
A land purchase combined with a build contract supports the analysis but does not count as one of the three closed sales.
How to use: Use this when deciding how to report construction-to-permanent transactions under Fannie Mae.
Exam Tip
Separate what can count toward the three-closed-sale minimum from what may be added as extra support.
Common Mistakes to Avoid
- -Counting a lot sale plus construction contract as a closed comparable
- -Reporting a built-to-order transaction as a listing
- -Confusing comparable data with the subject's sale history
Concept Deep Dive
Analysis
This question tests Fannie Mae's treatment of a transaction that combines a vacant lot purchase with a separate construction contract. Fannie Mae does not allow an appraiser to create a comparable sale this way. Such transactions can still be included as additional support with commentary.
Background Knowledge
Fannie Mae requires a minimum of three closed comparable sales in the sales comparison approach. A combined vacant land sale and construction contract is not a single market sale of a completed property. Additional data can support the analysis when clearly explained.
Real-World Application
In a new subdivision, an appraiser finds several homes where owners bought lots and then contracted with a builder. Because these are not single completed-home sales, the appraiser uses three other closed sales as the required comparables. The lot-plus-contract transactions are added as extra support with commentary.
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 cash price is $375,000 nine months before the effective date. Use an explicitly SIMPLE, non-compounded +0.80% monthly adjustment on original price. What signed time amount and adjusted price result?
Next Question
The subject property, a 1980s two-story home, has no patio. Comparable 1 has a one-year-old paver patio of the size and quality most homes in the neighborhood have. The one recent pair of sales that differ by a patio also differ in gross living area, condition and lot size, and the market gives no measure of those other differences. A local contractor has quoted a current price to build the same patio. Which evidence better indicates the patio adjustment to Comparable 1?