A comparable house sold with a substantial furniture package. The subject value sought is for real estate only. How should the appraiser treat the package in analyzing the sale?
Correct Answer
C) Identify the included nonrealty and analyze its supported effect on the sale comparison
Identify the nonrealty included in the comparable transaction and analyze whether and how it affected the price relevant to the real-estate-only comparison. Any adjustment must reflect supported market contribution, which need not equal retail cost or replacement cost and should not be assumed without analysis. The assignment’s identified property interest and included assets control the value premise.
Why This Is the Correct Answer
Option C is correct because the subject is valued as real estate only, so a comparable whose price included a furniture package must be analyzed for that non-realty before it can indicate real-estate value. Credible sales comparison analysis requires identifying what the comparable's price actually bought and adjusting for the supported market contribution of the furniture, which may differ from its retail or replacement cost.
Why the Other Options Are Wrong
Option A: Ignore it because furniture is not real estate
Option A, ignoring the furniture because it is not real estate, is wrong because the package may have raised the comparable's price. Ignoring it could overstate the real estate value indicated by that sale.
Option B: Deduct the furniture’s original retail cost
Option B, deducting the furniture's original retail cost, assumes cost equals market contribution. Used furniture in a sale often contributes far less than its original retail price, so the adjustment must be supported by market evidence.
Option D: Treat all of the furniture as permanent fixtures of the house, without any investigation
Option D, treating all of the furniture as permanent fixtures without investigation, is wrong. Furniture is ordinarily personal property, and classifying items requires investigation rather than assumption.
Separate the sofa from the sale
Take the furniture out of the comparable's price using what the market says it was worth, not what it cost new.
How to use: Use this when a comparable sale includes furniture, equipment or other non-realty.
Exam Tip
Prefer answers that identify and analyze non-realty with market support over those that ignore it or use cost figures.
Common Mistakes to Avoid
- -Ignoring personal property in comparable sales
- -Using retail cost as the adjustment amount
- -Assuming furniture is real property without investigation
Concept Deep Dive
Analysis
This question tests how to handle personal property included in a comparable sale when the subject is valued as real estate only. The appraiser must identify the non-realty in the comparable and analyze its effect on price. Any adjustment must reflect supported market contribution, not cost.
Background Knowledge
Sales prices sometimes include personal property, trade fixtures or intangible assets along with the real estate. When such items are included in the subject appraisal, SR 1-2(e)(iii) and SR 1-4(g) require the appraiser to identify them and analyze their effect on value. When valuing only the real estate, credible sales comparison analysis likewise requires adjusting comparable sales for included non-realty based on supported market contribution.
Real-World Application
A furnished vacation home sold with its furnishings included in the price. The appraiser researches what used furnishings typically add in that resort market and adjusts the sale before comparing it with the unfurnished subject.
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