Census figures for contractor-built houses are compared with sales of new speculative homes in the same area. Why are they not directly comparable?
Correct Answer
D) The contract price excludes land already owned by the owner
Contractor-built houses are built for owner occupancy on the owner’s own land, so the contract price does not include the cost of the land, unlike a house-and-lot sale.
Why This Is the Correct Answer
Option D is correct because the Census Bureau explains that a contractor-built house is built for the owner's occupancy on the owner's own land, so the contract price does not include the cost of the land. A speculative home sale price includes both the house and the lot. Comparing the two without accounting for land would understate the total cost of the contractor-built property.
Why the Other Options Are Wrong
Option A: Contract-built houses are counted after the closing date
Option A says contract-built houses are counted after the closing date. Timing of the count is not the stated difference; the key definitional issue is that the contract price excludes the owner's land.
Option B: Contract-built figures include the builder’s marketing costs
Option B says contract-built figures include the builder's marketing costs. Nothing in the definition says marketing costs are added to contract prices, and that is not why the figures differ from spec home sales.
Option C: Contract-built houses are by definition larger than spec homes
Option C says contract-built houses are by definition larger than spec homes. The definition is based on who owns the land and for whom the house is built, not on house size.
Owner's Lot, Not In Price
If the owner already holds the lot, the builder is not selling it. So the contract price covers the house only.
How to use: Use this reminder when comparing contract construction prices with house-and-lot sale prices.
Exam Tip
When a question asks why two data sets are not directly comparable, look for a difference in what each price includes. Land is a frequent missing component.
Common Mistakes to Avoid
- -Comparing contract construction prices directly with house-and-lot sale prices
- -Assuming all published new-home prices include land
- -Attributing the difference to house size rather than to what the price includes
Concept Deep Dive
Analysis
This question tests understanding of how Census data for contractor-built houses is defined. Contractor-built houses are built for owner occupancy on land the owner already owns, so the contract price covers the house but not the land. Speculative homes sold as house-and-lot packages include land in the price, which makes direct comparison misleading.
Background Knowledge
Data sources define their terms differently, and appraisers need to know what a reported figure includes before comparing it with other data. A contract price for building on owner-held land reflects construction only, while a speculative home sale reflects a completed house and lot. Mixing these figures without adjustment can distort cost and market analysis.
Real-World Application
An appraiser researching new construction finds Census contract prices for houses built on owners' lots and sale prices for spec homes in a nearby subdivision. She recognizes that the contract figures exclude land. Before comparing them, she adds a supported site value to the contract figures or relies on the house-and-lot sales instead.
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