An appraiser’s analysis finds the market reacted to a comparable’s financing concession by its full dollar amount. Under Fannie Mae guidance, the adjustment may be:
Correct Answer
D) Dollar for dollar, as a deduction
Dollar-for-dollar deductions equal to the seller’s cost are generally not appropriate, but if the appraiser’s analysis shows the market reaction is the full amount, a dollar-for-dollar adjustment is acceptable. Positive concession adjustments are not.
Why This Is the Correct Answer
Option D is correct because Fannie Mae states that if the appraiser's analysis determines the market's reaction is the full amount of the financing concession, a dollar-for-dollar adjustment is acceptable. The concession inflated the comparable's price, so the adjustment is negative. The key is that the analysis, not the concession amount alone, supports the full deduction.
Why the Other Options Are Wrong
Option A: Zero, since the concession was typical
Option A says the adjustment is zero because the concession was typical. The stem states the analysis found the market reacted by the full dollar amount, so the price was affected and an adjustment is supported.
Option B: Half the concession amount, as a deduction
Option B uses half the concession amount as a deduction. Nothing in the analysis supports a 50% reaction; the market reaction was found to be the full amount, so a fixed fraction does not follow from the facts.
Option C: Positive by the concession amount
Option C makes a positive adjustment by the concession amount. A financing concession that raised the comparable's price calls for a downward adjustment, and Fannie Mae does not accept positive adjustments for concessions.
Market reaction sets the size
Concession adjustments go down, and their size is whatever the market reaction shows, up to the full amount.
How to use: Use this to reject positive concession adjustments and fixed fractions.
Exam Tip
Watch for whether the stem says the analysis shows a full market reaction; that is what makes the dollar-for-dollar adjustment acceptable.
Common Mistakes to Avoid
- -Making a positive adjustment for a seller concession
- -Automatically deducting the full concession without market analysis
- -Applying an arbitrary fraction of the concession
Concept Deep Dive
Analysis
This question tests Fannie Mae's guidance on adjusting for financing concessions. Dollar-for-dollar deductions equal to the seller's cost are generally not appropriate, because the market may not react to the full amount. However, when the appraiser's analysis shows the market reacted by the full amount, a dollar-for-dollar negative adjustment is acceptable.
Background Knowledge
Sales or financing concessions, such as seller-paid closing costs or buydowns, can raise the recorded sale price above what a buyer would pay with typical terms. Fannie Mae requires adjustments to reflect the market's reaction to the concession, which may be less than its cost. When market analysis supports the full amount, a dollar-for-dollar negative adjustment is acceptable.
Real-World Application
In a new-home market, builders pay buyers' closing costs, and an appraiser's paired analysis shows prices rise by the full amount of those payments. A comparable sold for $350,000 with $7,000 in seller-paid costs. The appraiser adjusts it down by $7,000 and explains the supporting analysis.
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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Which set includes both transaction-related and property-related elements relevant to comparable-sale analysis?
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Three colonial-style homes in the subject's subdivision sold recently. Sale 1 sold for $372,000 and has net adjustments of +$8,000. Sale 2 sold for $395,000 after being listed at $409,000, and has net adjustments of −$9,000. Sale 3 sold for $401,000 and has net adjustments of −$9,000. Based on comparability, the appraiser weights the adjusted prices of Sales 1, 2 and 3 at 60%, 25% and 15% and rounds the result to the nearest $1,000. What is the indicated value by the sales comparison approach?