An appraiser plans to measure the adjustment for a fenced in-ground pool by capitalizing a rent difference, because many homes in the neighborhood are rented and no paired sales isolate a pool. Which two inputs does this technique require?
Correct Answer
A) A market rent difference and a multiplier from rented home sales
Capitalizing a rent difference converts the extra rent a feature earns into a lump-sum adjustment, so it needs the market rent difference attributable to the feature and a conversion factor, for homes usually a gross rent multiplier drawn from sales of similar rented homes. Both inputs should come from the market. A single lease, a national survey rate, a construction cost and figures built from asking rents or listing prices are not market measures of what renters and buyers actually paid.
Why This Is the Correct Answer
Option A is correct because the technique multiplies the market rent difference caused by the pool by a multiplier derived from sales of similar rented homes. Both the rent difference and the conversion factor should come from market evidence for the method to measure buyers' reaction.
Why the Other Options Are Wrong
Option B: The subject's lease rent and a rate from a national investor survey
Option B uses the subject's own lease rent and a rate from a national investor survey. One property's lease is not a market rent difference for the pool, and a national survey rate is not derived from sales of similar rented homes in this market.
Option C: The pool's cost to build and the rent the subject's owner charges
Option C uses the pool's construction cost and the rent the subject's owner charges. Cost belongs to cost analysis, not rent capitalization, and one owner's rent does not show the difference the market pays for a pool.
Option D: Asking rents in current ads and a multiplier from listing prices
Option D uses asking rents from ads and a multiplier from listing prices. Asking figures are offers rather than agreed terms, so neither input shows what tenants and buyers actually paid.
Rent gap times market multiplier
The adjustment is the feature's market rent gap times a multiplier taken from similar rented sales.
How to use: Use this when asked what data a rent-based adjustment needs.
Exam Tip
If an option leans on cost, asking prices or one owner's lease, it is not a market rent difference or a market multiplier.
Common Mistakes to Avoid
- -Using one property's lease as the rent difference
- -Deriving a multiplier from listing prices
- -Mixing construction cost into a rent-based method
Concept Deep Dive
Analysis
The question tests the two building blocks of an income capitalization adjustment. The appraiser needs how much more the market pays in rent because of the feature, and a factor that turns monthly or annual rent into value, taken from sales of similar rented homes. Both must reflect actual market transactions.
Background Knowledge
Rent capitalization is one of the recognized quantitative techniques for estimating adjustments. A rent difference due to a specific characteristic is capitalized into an adjustment amount. For one- to four-unit homes, the factor is usually a gross rent multiplier derived from sale prices and rents of similar rented properties.
Real-World Application
In a neighborhood with many rented homes, an appraiser compares leases of homes with and without pools to find the monthly rent premium. She then derives a gross rent multiplier from recent sales of rented homes and multiplies the premium by it.
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?
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Previous Question
Which of these is a recognized quantitative technique for estimating adjustment amounts?
Next Question
A comparable has a cash-equivalent sale price of $662,000. The subject and comparable have the same rights and relevant characteristics except for one permanent real-property feature. Verified market evidence supports a $58,000 contributory difference: the comparable has the superior feature and the subject lacks it. Adjust only the comparable toward the subject. What is its adjusted price?