An office building comparable has much higher operating expenses and weaker tenants than the subject. Which element of comparison covers these differences?
Correct Answer
B) Economic characteristics
Economic characteristics include attributes affecting income, such as operating expenses, management quality, tenant quality and certain lease provisions. They are distinct from property rights (above- or below-market rent) and market conditions.
Why This Is the Correct Answer
Option B is correct because economic characteristics include all property attributes that affect the income stream, such as the level of operating expenses, quality of management and tenant quality. Higher expenses and weaker tenants in the comparable fall squarely within this element.
Why the Other Options Are Wrong
Option A: Property rights conveyed
Option A, property rights conveyed, deals with the interest transferred, such as fee simple or leased fee, including the effect of above- or below-market leases. It does not cover operating expense levels or tenant credit quality.
Option C: Market conditions
Option C, market conditions, addresses changes in the market between the comparable's sale date and the effective date. It does not address the comparable's own expenses or tenants.
Option D: Conditions of sale
Option D, conditions of sale, addresses the motivations of the buyer and seller, such as related-party or distressed transactions. Expense levels and tenant quality are not conditions of sale.
Economic Equals Income Stream
If the difference changes the income or expenses the property produces, it belongs under economic characteristics.
How to use: Use this to sort expense, management and tenant differences into the right element of comparison.
Exam Tip
Separate lease rights (property rights conveyed) from income-related attributes like expenses and tenant quality (economic characteristics).
Common Mistakes to Avoid
- -Classifying tenant quality as property rights conveyed
- -Treating expense differences as market conditions
- -Applying economic characteristics to typical owner-occupied homes
Concept Deep Dive
Analysis
This question tests the elements of comparison for income-producing property. Operating expenses and tenant quality affect a property's income stream. The element that covers attributes affecting income is economic characteristics.
Background Knowledge
Common elements of comparison include property rights conveyed, financing terms, conditions of sale, expenditures after purchase, market conditions, location, physical characteristics, economic characteristics, use and non-realty components. Economic characteristics are generally applicable to income-generating properties.
Real-World Application
An appraiser valuing a well-leased office building finds a comparable with older systems driving high operating costs and tenants with weak credit. The appraiser analyzes these differences under economic characteristics when adjusting the sale.
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?
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Previous Question
A trainee analyzing a ranch-style home rates each comparable on view, condition, and location, scoring +1 for superior, 0 for similar, and −1 for inferior. A $380,000 sale scores +1 for view, −1 for condition, and +1 for location, a net of +1, so the trainee subtracts $5,000, a round figure chosen for each point. After doing the same for two other sales, the trainee averages the three results and reports $378,000. What is the main flaw in this analysis?
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