An REO sale where the property was listed for 120 days and marketed conventionally:
Correct Answer
D) May be usable once verified and its differences are analyzed
Normal marketing exposure can support relevance but does not alone prove a sale has no distress or other transaction effect. Verify actual terms, condition and market response; make only supported adjustments and do not automatically exclude an REO sale or require a fixed distress adjustment.
Why This Is the Correct Answer
Option D is correct because an REO sale may be used as a comparable once its terms, condition and market response are verified and its differences from the subject are analyzed. Fannie Mae allows foreclosures as comparables when they are the best and most appropriate sales available, and requires the appraiser to consider differences such as condition and any stigma. Any adjustments must be supported.
Why the Other Options Are Wrong
Option A: Requires no analysis of how the property was marketed or sold
Option A is wrong because it says the sale requires no analysis of how it was marketed or sold. Normal marketing helps, but the appraiser still needs to verify terms and consider condition, stigma and other transaction effects.
Option B: Requires a fixed distress adjustment to its sale price
Option B is wrong because it requires a fixed distress adjustment to the sale price. Adjustments must reflect supported market evidence for this sale, and a conventionally marketed REO may need little or no distress adjustment.
Option C: Is excluded from the grid because a bank owned the property
Option C is wrong because it excludes the sale just because a bank owned it. Bank ownership alone does not disqualify a comparable; foreclosures can be used when they are the best and most appropriate sales available.
REO: verify, don't vilify
A bank-owned sale is not automatically excluded or discounted. Verify how it was sold and adjust only for supported differences.
How to use: Use this when a question asks how to treat a foreclosure or REO comparable.
Exam Tip
Avoid answers that exclude REO sales outright or require a set distress adjustment; look for verification and supported analysis.
Common Mistakes to Avoid
- -Excluding a sale only because it was bank-owned
- -Applying a standard distress discount without market support
- -Assuming normal marketing means no further verification is needed
Concept Deep Dive
Analysis
This question tests how to treat a bank-owned (REO) sale that was marketed in a normal way. Normal exposure supports its relevance but does not alone prove there was no distress or other transaction effect. The appraiser verifies the sale and analyzes its differences rather than excluding it or applying a fixed discount.
Background Knowledge
REO sales may sell at a discount because of condition, limited seller disclosures or motivation, but the effect varies. When an REO is marketed conventionally and exposed to the market for a typical period, it may reflect market behavior closely, though the appraiser still verifies the details.
Real-World Application
An appraiser finds a nearby REO that was listed on the MLS for four months and drew several offers. She confirms the condition at sale with the listing agent, adjusts for its dated interior and uses it alongside traditional sales.
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 'pair' shows a $22,000 gap, but closer reading reveals the cheaper sale also had dated baths. The $22,000 represents:
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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?