An appraiser uses comparable sales from a competing neighborhood because they are the best available. What does Fannie Mae require?
Correct Answer
A) Identify the competing neighborhood, explain the choice and any differences
Fannie Mae allows competing-market sales but says the appraiser must not expand neighborhood boundaries to encompass them; the report must indicate they are from a competing neighborhood, address differences and explain why they were used.
Why This Is the Correct Answer
Option A is correct because Fannie Mae Selling Guide B4-1.3-08 says the appraiser must indicate the comparables are from a competing neighborhood and address any differences that exist. The appraiser also explains why they were used. This keeps the neighborhood analysis honest while allowing the best available evidence.
Why the Other Options Are Wrong
Option B: Redraw the subject’s neighborhood boundaries so the comparables fall inside them
Option B redraws the subject's neighborhood boundaries so the comparables fall inside them. Fannie Mae expressly says the appraiser must not expand neighborhood boundaries just to encompass the comparables selected.
Option C: Use them without comment, since competing areas are interchangeable
Option C uses the sales without comment because competing areas are interchangeable. Competing neighborhoods can differ in location appeal and other factors, so the appraiser must identify them and address the differences.
Option D: Replace them with older sales from inside the subject’s neighborhood
Option D replaces them with older sales from inside the subject's neighborhood. Fannie Mae permits competing-neighborhood sales when they are the best available, so swapping them for weaker comparables is not required.
Label it, don't move the line
When comparables come from a competing area, label them and explain them; never move the neighborhood line to fit them.
How to use: Use this to spot the answer that discloses rather than redraws.
Exam Tip
For Fannie Mae work, prefer the answer that identifies competing-neighborhood sales and explains them over one that alters the neighborhood definition or stays silent.
Common Mistakes to Avoid
- -Expanding neighborhood boundaries to include chosen comparables
- -Treating all competing areas as identical to the subject's neighborhood
- -Believing Fannie Mae forbids comparables outside the subject's neighborhood
Concept Deep Dive
Analysis
This question tests Fannie Mae's guidance on using comparable sales from a competing neighborhood. Fannie Mae allows such sales when they are the best available, but the appraiser must not stretch the neighborhood boundaries to include them. Instead, the report must identify them as from a competing neighborhood, address differences and explain why they were used.
Background Knowledge
A competing neighborhood is one that appeals to the same buyers and competes with the subject's area, even if it lies outside the subject's defined neighborhood. Neighborhood boundaries should reflect real market influences, not the appraiser's comparable choices. Fannie Mae accepts competing-area sales with proper identification and explanation.
Real-World Application
A subject sits in a small subdivision with no recent similar sales. The appraiser uses three sales from a similar subdivision across the main road that attracts the same buyers. The report identifies them as from a competing neighborhood, adjusts for location differences and explains the choice.
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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A comparable closed nine months ago; public records show it, but the parties will not discuss terms. Before relying on it, the appraiser should:
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In the subject's neighborhood, a long-time broker says that a finished basement adds about $10,000 to a home's price. The appraiser has three well-matched, verified sale pairs of homes with and without finished basements of similar size and quality, indicating differences of $20,000, $22,000, and $24,000. Local contractors charge about $35,000 to finish such a basement. Which basement adjustment is most reasonable?