Comparable sales are scarce in the subject’s neighborhood, so the appraiser uses sales from a competing neighborhood. What does Fannie Mae prohibit in this situation?
Correct Answer
C) Expanding the neighborhood to take in the comparables
The appraiser must not expand the neighborhood boundaries just to encompass the comparables selected, and must explain why the sales were used and how the competing neighborhood compares to the subject’s.
Why This Is the Correct Answer
Option C is correct because Fannie Mae states that the appraiser must not expand the neighborhood boundaries just to encompass the comparables selected. Redrawing boundaries would misdescribe the subject's market area. The appraiser should keep an accurate neighborhood description and explain the use of the outside sales.
Why the Other Options Are Wrong
Option A: Explaining why the competing neighborhood is comparable
Option A, explaining why the competing neighborhood is comparable, is wrong because that explanation is expected, not prohibited. The appraiser should explain why the sales were used and how the competing neighborhood compares to the subject's.
Option B: Using any sale from outside the subject’s neighborhood
Option B, using any sale from outside the subject's neighborhood, is wrong because Fannie Mae allows sales from competing neighborhoods when local sales are scarce. What it prohibits is redrawing the boundaries to take them in.
Option D: Reporting more than three closed comparable sales
Option D, reporting more than three closed comparable sales, is wrong because reporting additional comparable sales is not what is prohibited here. The prohibited act is stretching the neighborhood boundaries to cover the selected comparables.
Explain, don't stretch
When comparables come from outside, explain the choice instead of stretching the neighborhood map.
How to use: Use this when a question asks what to do with comparables from a competing neighborhood.
Exam Tip
Read 'prohibit' questions carefully: pick the one action Fannie Mae forbids, not actions it permits or expects.
Common Mistakes to Avoid
- -Redrawing the neighborhood to cover selected comparables
- -Thinking sales from outside the neighborhood are banned
- -Leaving out the explanation of why competing-area sales were used
Concept Deep Dive
Analysis
This question tests Fannie Mae guidance on using sales from a competing neighborhood when local sales are scarce. Such sales may be used, but the appraiser must not redraw the neighborhood to make them fit. The appraiser instead explains why the sales were used and how the competing neighborhood compares.
Background Knowledge
The neighborhood description defines the subject's market area and should reflect real market influences, not the appraiser's comparable choices. When comparables come from a competing area, the report should explain why they were used and how that area compares. Accurate boundaries help reviewers judge whether the comparables are appropriate.
Real-World Application
A rural subject has had no sales in its subdivision for a year, so the appraiser uses sales from a similar subdivision a few miles away. Instead of widening the neighborhood boundary to include that subdivision, the appraiser keeps the original boundary. The report explains why the outside sales were chosen and how the two areas compare in location, housing and appeal.
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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Previous Question
Whenever possible, with whom should an appraiser verify a comparable sale?
Next Question
The subject is a three-bedroom ranch home. For the 12 months before the effective date, the monthly median sale price of competing ranch homes stayed between $286,000 and $290,000, rising in some months and falling in others with no sustained direction. Two unchanged homes resold during the period, one $1,000 above and the other $500 below its earlier price. Comparable 3 went under contract at $292,000 seven months before the effective date. What market conditions adjustment is indicated for Comparable 3?