In a coastal area where many homes have backup power, the subject property has a two-year-old whole-house standby generator, and Comparable 2 has none. No paired sales isolate the generator, and market data show buyers pay about its depreciated replacement cost. The appraiser has four cost figures: a local installer's current bid of $13,500 to install the same model; the manufacturer's current catalog price of $8,900 for that model, which covers the unit only; a cost manual figure for a lower quality class of generator; and the $16,000 the subject's homeowners policy lists as the generator's insured value. Which figure is the best starting point for the adjustment?
Correct Answer
A) The local installer's current bid for the same model
A cost-based adjustment starts from today's full cost to replace the item that is actually there, installed and working, then deducts depreciation. A local installer's current bid to install the same model measures exactly that. The manufacturer's catalog price covers the equipment but not the labor, materials and permits needed to put it in place, a manual figure for a lower quality class prices a different item, and an insured value is set for insurance coverage rather than measured as replacement cost in the market.
Why This Is the Correct Answer
Option A is correct because a local installer's current bid for the same model is today's cost to replace the subject's generator, which is the starting figure cost analysis needs. Building contractors are a standard source of cost data, and the bid is current, local and for the identical item.
Why the Other Options Are Wrong
Option B: The manufacturer's current catalog price for the same model
Option B uses the manufacturer's $8,900 catalog price, which covers the unit only. The generator contributes value as an installed system, and the labor, materials and permit fees to install it are direct costs of the improvement, so the catalog price understates its replacement cost; the installer's $13,500 bid includes them.
Option C: The cost manual figure for the lower quality class
Option C uses a cost manual figure for a lower quality class of generator. A cost figure must match the item being valued, and pricing a lesser class would understate the cost of the subject's unit.
Option D: The insured value listed on the subject's policy
Option D uses the $16,000 insured value from the subject's homeowners policy. Insured values are set for coverage purposes and may include items or margins unrelated to market cost, so they are not a reliable measure of replacement cost.
Same item, in place, today
A cost source must price the same item, installed and working, at today's cost; a bare equipment price, a lesser class and an insurance figure each miss one of those marks.
How to use: Use this when a question lists several cost figures and asks which to start from.
Exam Tip
Test each figure on three points: is it current, is it for the same item, and does it include putting the item in place? The one that passes all three is usually the answer.
Common Mistakes to Avoid
- -Using an equipment price that leaves out installation
- -Pricing a lower quality class than the item present
- -Treating an insured value as market cost
Concept Deep Dive
Analysis
The question tests matching the cost source to the whole item. Cost analysis needs the current replacement cost of the same item, installed, from a source that reflects typical market costs, before depreciation is deducted. Each distractor fails one of those tests: the equipment without its installation, a different item, or a figure set for another purpose.
Background Knowledge
Cost analysis bases an adjustment on cost indicators such as replacement cost less depreciation. The cost figure should be current, for the same type and quality of item, and complete: direct costs cover the labor and materials to put the item in place and items such as permit fees. Typical sources include contractors, price lists and cost services, while insured values are set for coverage, not measured from the market.
Real-World Application
An appraiser in a hurricane-prone county values a home with a standby generator. She calls a local installer for a current installed price on the same model, deducts depreciation for two years of use, and notes that the owner's insurance schedule was not used as a cost source.
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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In a Fannie Mae appraisal of a 1,950-square-foot ranch home, the appraiser reconciled three adjusted sales, Sale 1 at $393,000, Sale 2 at $386,000 and Sale 3 at $396,000, to $390,000. Sale 2 sold for $392,000 and was recorded as 2,100 square feet, so it received a −$9,000 size adjustment at the market rate of $60 per square foot, plus +$3,000 for its older roof. A review finds Sale 2's living area was overstated by 200 square feet. Once Sale 2 is corrected, how does the $390,000 conclusion stand?