How does the Fannie Mae Selling Guide define the market area used when choosing comparable sales?
Correct Answer
D) The region from which most demand comes and where most competition is
The Guide defines market area as the geographic region, for the subject, from which most demand comes and in which most of the competition is located. It is defined by buyer demand and competition, not by a political boundary, a fixed radius or a single subdivision.
Why This Is the Correct Answer
Option D is correct because the Selling Guide defines market area as the geographic region, for a subject property, from which most demand comes and in which most of the competition is located. This ties the area to buyer behavior and competing supply.
Why the Other Options Are Wrong
Option A: The city or county boundary within which the subject property is located
Option A defines market area as the city or county boundary. Political boundaries do not necessarily match where buyers come from or where competing properties are found.
Option B: The area within one mile of the subject, measured in a straight line
Option B uses a straight-line one-mile radius from the subject. A fixed radius does not reflect where demand and competition actually lie, which may be closer or farther.
Option C: The subdivision or project in which the subject property is located
Option C limits the market area to the subject's subdivision or project. Competition and demand often extend beyond a single subdivision, so this is too narrow as a definition.
Where buyers and rivals are
The market area is where most of the subject's buyers come from and where most of its rival properties sit.
How to use: Use this to reject answer choices that define market area by boundaries or distance.
Exam Tip
Choose definitions built on demand and competition over ones based on a fixed distance or a government boundary.
Common Mistakes to Avoid
- -Limiting comparables to a fixed radius
- -Treating city or county lines as the market area
- -Confining the search to the subject's subdivision
Concept Deep Dive
Analysis
This question tests Fannie Mae's definition of market area. The market area is defined by where demand comes from and where competing properties are located, not by a political boundary or a fixed distance. Comparable selection follows this economic definition.
Background Knowledge
Market area is an economic concept based on demand and competition. Buyers who would consider the subject also consider competing properties within that area. Comparable sales are drawn from this area because they reflect the same buyer pool.
Real-World Application
A subject sits near a county line, and buyers routinely shop homes on both sides. The appraiser draws comparables from both counties because that is where the subject's competition and demand are located.
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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