Verified applicable evidence supports $70 per sqft for material nonzero size differences, but an appraiser uses $50. What follows?
Correct Answer
C) The size adjustments are too small; the effect depends on each difference
For a nonzero area difference, using $50 instead of the stipulated applicable $70 per sqft reduces the absolute size adjustment. An undersized comparable receives too small an upward adjustment; an oversized comparable receives too small a downward adjustment. The overall value conclusion’s direction and materiality depend on the set and reconciliation. A lower unsupported rate is not automatically conservative.
Why This Is the Correct Answer
Option C is correct because a lower rate shrinks each nonzero size adjustment: smaller comparables receive too little upward adjustment, and larger comparables receive too little downward adjustment. The size of the error for each sale depends on its area difference.
Why the Other Options Are Wrong
Option A: The adjusted prices are unchanged, since the rate applies to all sales
Option A says the adjusted prices are unchanged because the rate applies to all sales. Any comparable with a nonzero size difference gets a different adjustment at $50 than at $70, so its adjusted price changes.
Option B: The lower rate makes the analysis more conservative and defensible
Option B says the lower rate makes the analysis more conservative and defensible. An unsupported rate is not defensible, and a smaller rate can push adjusted prices either up or down depending on whether each comparable is larger or smaller, so it is not automatically conservative.
Option D: The size adjustments are too large for the smaller comparables
Option D says the size adjustments are too large for the smaller comparables. At $50 instead of $70, the upward adjustments for smaller comparables are too small, not too large.
Low rate shrinks both ways
A rate that is too low makes each adjustment too small, so ups are too small and downs are too small.
How to use: Use this to predict the effect of any understated adjustment rate.
Exam Tip
Be wary of answer choices that call an unsupported number conservative; the issue is support, not whether the number is lower.
Common Mistakes to Avoid
- -Assuming a lower rate is automatically conservative
- -Thinking a uniform rate leaves adjusted prices unchanged
- -Getting the direction of the error reversed for smaller comparables
Concept Deep Dive
Analysis
This question tests the effect of using an unsupported adjustment rate. Using $50 instead of the supported $70 per square foot makes each size adjustment smaller in absolute terms, whether the comparable is larger or smaller than the subject. The effect on each comparable depends on the size and direction of its difference.
Background Knowledge
Adjustment rates must be derived from market evidence such as paired sales, statistical analysis or modeling. Fannie Mae gives the example that a rule-of-thumb rate is inappropriate when market analysis indicates a different rate. An unsupported rate distorts each adjusted price in proportion to the size difference.
Real-World Application
A reviewer finds an appraiser used a $50 per square foot rule of thumb while paired sales in the area showed $70. The smaller comparables were under-adjusted upward and the larger ones under-adjusted downward, so the reviewer asks for revised, supported adjustments.
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?
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A comparable sold for $300,000 and has a superior view that the subject lacks. Verified evidence supports a downward view adjustment of 6.5% of that comparable’s price. Which adjusted price and method statement are appropriate?
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