Expenditures made immediately after purchase are an element of comparison because:
Correct Answer
C) Known needed outlays can affect what buyers pay, so analyze their effect
Known necessary expenditures can affect how buyers price a property and may need analysis in the comparison. Purchase price plus repair cost is total outlay, not automatically cash-equivalent market value or the correct adjustment. Support the market effect and avoid double counting a condition adjustment.
Why This Is the Correct Answer
Option C is correct because known needed outlays can affect what buyers pay, so their effect on the comparable's price must be analyzed. Expenditures made immediately after purchase are recognized as a basic element of comparison alongside property rights, financing, conditions of sale and market conditions. The appraiser supports the market effect and avoids double counting with a separate condition adjustment.
Why the Other Options Are Wrong
Option A: Such expenditures are added dollar for dollar to the sale price as market value
Option A is wrong because such expenditures are not added dollar for dollar to the sale price as market value. Purchase price plus repair cost is the buyer's total outlay, which is not automatically the cash-equivalent market value or the correct adjustment.
Option B: Sellers reimburse such expenditures to the buyer at closing
Option B is wrong because the element of comparison does not rest on sellers reimbursing these expenditures to the buyer at closing. It reflects the buyer's anticipated outlays after the purchase and how they influenced the price paid.
Option D: They set the property’s assessed value for the next tax year
Option D is wrong because expenditures after purchase do not set the property's assessed value for the next tax year. Tax assessment is a separate process, and this element of comparison concerns how buyers priced the property in light of needed outlays.
Price plus planned repairs
A buyer facing a known repair bill thinks about price and repairs together. The appraiser asks how much the market let that repair bill shape the price, not simply what the two add up to.
How to use: Use this reminder when a comparable needed immediate work after closing and you must decide how to analyze it.
Exam Tip
Choose the answer that calls for analyzing the market effect of post-purchase outlays. Be wary of options that add the cost dollar for dollar or tie it to unrelated items like tax assessment.
Common Mistakes to Avoid
- -Adding repair costs to the sale price and calling the total market value
- -Making both an expenditure adjustment and a condition adjustment for the same issue
- -Ignoring known post-purchase outlays when verifying the sale
Concept Deep Dive
Analysis
This question tests why expenditures made immediately after purchase are listed as an element of comparison. Buyers who know a property needs repairs, demolition or other immediate outlays tend to account for that cost in what they are willing to pay. The appraiser must analyze the market effect of such outlays rather than simply adding them to the price.
Background Knowledge
Standard elements of comparison include property rights conveyed, financing terms, conditions of sale, expenditures made immediately after purchase and market conditions. When a buyer must spend money right after closing, for example to cure deferred maintenance or demolish an obsolete structure, the price paid often reflects that anticipated cost.
Real-World Application
A comparable sold with a failing roof that the buyer replaced the month after closing. The appraiser verifies the roof issue with the parties and considers how the known need influenced the price, making sure not to also count the same issue again in a condition adjustment.
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?
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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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