An appraiser uses a recent foreclosure as a comparable because it is the best available sale. According to Fannie Mae, what may the appraiser NOT assume about how the foreclosure compares with the subject?
Correct Answer
C) That its condition equals the subject’s condition
Foreclosures and short sales may be used if they are the best available sales, but the appraiser cannot assume the property is equal to the subject; it may be in worse condition, especially when the subject is new or renovated.
Why This Is the Correct Answer
Option C is correct because Fannie Mae states the appraiser cannot assume a foreclosure or short sale is equal to the subject property. For example, it may be in worse condition, especially when the subject is new construction or was recently renovated, so condition must be analyzed rather than assumed.
Why the Other Options Are Wrong
Option A: That it can serve as a comparable sale here
Option A, that it can serve as a comparable here, is permitted: foreclosures may be used when they are the best available sales. That is not something the appraiser is barred from assuming in this situation.
Option B: That it may need adjustments for differences
Option B, that it may need adjustments for differences, is a reasonable expectation rather than a prohibited assumption. Differences such as condition are exactly what the appraiser should analyze and adjust for when supported.
Option D: That its sale must be discussed in the report
Option D, that its sale must be discussed in the report, describes appropriate reporting of a distressed sale rather than a forbidden assumption about how it compares with the subject.
Distressed Means Double-Check
A foreclosure can be a comparable, but its condition must be checked, not assumed equal to the subject.
How to use: Use this whenever a question involves a foreclosure or short sale used as a comparable.
Exam Tip
For a NOT question, find the one choice that is a prohibited assumption; the other choices describe proper practice.
Common Mistakes to Avoid
- -Assuming a distressed sale has the same condition as the subject
- -Believing foreclosures cannot be used as comparables
- -Failing to verify the condition and circumstances of a distressed sale
Concept Deep Dive
Analysis
This question tests Fannie Mae guidance on using foreclosure or short sales as comparables. Such sales may be used when they are the best available, but the appraiser cannot assume the property is equal to the subject. Condition is the classic concern, since a distressed property may be in worse condition.
Background Knowledge
Distressed sales, such as foreclosures and short sales, can be valid market evidence when they are the best available comparables. They may involve deferred maintenance, as-is conditions or seller motivations that require careful verification and adjustment.
Real-World Application
Valuing a newly renovated home, an appraiser uses a nearby REO sale as the best available comparable. Verification shows it sold with deferred maintenance, so the appraiser makes a supported condition adjustment and explains it in the report.
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 2,400-sf home built in 2006 on a golf-course lot is being appraised. Sale 1, on a golf-course lot, is 2,520 sf and adjusts to $541,000. Sale 2, on a golf-course lot, is 2,310 sf and adjusts to $549,750. Sale 3 is a 2,380-sf home on an interior lot that sold for $540,000; its adjusted price of $572,500 includes a $31,000 lot adjustment. No sale in the set has a lot superior to the subject's. Which sale should receive the least reliance?
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A comparable sold with seller financing at an interest rate well below the market rate for similar loans. What does that indicate for the comparable’s price?