Comparable 3, a split-level home, sold for $360,000 four months before the effective date. The executor of the owner's estate accepted the first offer after two weeks of limited marketing. Paired sales show that homes sold this way at that time brought about 10% less than fully marketed sales of similar homes. Prices have been stable since the contract date. The deceased owner had bought the home for $210,000. What is the comparable's price after the conditions-of-sale adjustment?
Correct Answer
D) $400,000
The paired sales measure the estate discount as a share of fully marketed prices, so the estate price is 90% of what a fully marketed sale would have brought: $360,000 / 0.90 = $400,000. Adding 10% of the estate price ($396,000) applies the percentage to the wrong base, deducting 10% ($324,000) runs the adjustment the wrong way, and $360,000 ignores the limited marketing. Prices have been stable, so no market conditions adjustment applies, and the $210,000 purchase price has no bearing.
Why This Is the Correct Answer
Option D is correct because the estate sale brought 90% of a fully marketed price, so the market-level price is $360,000 / 0.90 = $400,000, an upward adjustment of $40,000. Prices have been stable since the contract date, so no market conditions adjustment follows.
Why the Other Options Are Wrong
Option A: $324,000
Option A, $324,000, deducts 10% from the estate price ($360,000 x 0.90). The comparable sold below market because of its limited marketing, so it is inferior on conditions of sale and its price must be raised, to $360,000 / 0.90 = $400,000.
Option B: $360,000
Option B, $360,000, makes no conditions-of-sale adjustment. Paired sales show that an estate sale on the first offer after two weeks brought about 10% less than fully marketed sales, so the recorded price understates the market-level price of $400,000.
Option C: $396,000
Option C, $396,000, adds 10% of the estate price ($360,000 x 1.10). The 10% was measured as a share of fully marketed prices, not of estate prices, so applying it to $360,000 falls $4,000 short; the correct figure is $360,000 / 0.90 = $400,000.
Divide back to the base
If a sale brought 10% less than market, it brought 90% of market, so divide by 0.90 to get back to market. Adding 10% of the lower price falls short.
How to use: Use this when a stem states a conditions-of-sale or other discount as a percentage of market prices.
Exam Tip
Ask what the percentage was measured from. If the base is the market price, the comparable's price equals the market price times (1 - discount); solve for the market price.
Common Mistakes to Avoid
- -Adding the percentage to the discounted price instead of dividing back to the market base
- -Deducting the discount from a sale that is already below market
- -Using the deceased owner's purchase price
Concept Deep Dive
Analysis
The question tests the conditions-of-sale adjustment when the market evidence states the discount as a percentage. The 10% was measured against fully marketed prices, so the estate price is 90% of the market-level price and the correction divides by 0.90 rather than adding 10% of the estate price. The stable market and the owner's purchase price are distractions.
Background Knowledge
Conditions of sale cover the motivations and market exposure behind a price, such as an estate, related-party or distressed sale. When paired data measure the effect as a percentage, the adjustment must be applied on the same base the percentage was measured from: a discount stated as a share of market prices is removed by dividing by one minus the discount.
Real-World Application
An appraiser finds that quick estate sales in a subdivision have sold about 10% below fully marketed sales. For an executor's sale at $360,000, she restores the price to $400,000 by dividing by 0.90 and explains the paired data in the report.
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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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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