In a market segment, large seller concessions are typical. Does that make a concession adjustment unnecessary under Fannie Mae guidance?
Correct Answer
D) No, because the need for an adjustment does not depend on how typical concessions are
Fannie Mae states that the need for, and amount of, negative concession adjustments is not based on how typical the concessions are; even typical large concessions can produce prices above the value of the real estate. Positive concession adjustments are not acceptable.
Why This Is the Correct Answer
Option D is correct because Fannie Mae states that the need for negative concession adjustments, and their amount, is not based on how typical the concessions are for a segment of the market. Typical large concessions can still result in sale prices that reflect more than the value of the real estate. The appraiser must analyze the price effect regardless of how common concessions are.
Why the Other Options Are Wrong
Option A: Yes, because typical concessions are already part of market value
Option A says yes because typical concessions are already part of market value. Fannie Mae guidance rejects this reasoning, noting that even typical large concessions can produce prices above the value of the real estate.
Option B: Yes, unless the concession exceeds 6% of the sale price
Option B says no adjustment is needed unless the concession exceeds 6% of the sale price. The cited guidance ties the adjustment to the price effect of the concession, not to a percentage cutoff, so a smaller concession can still require a negative adjustment.
Option C: No, because a positive adjustment is then required for sales without concessions
Option C says a positive adjustment is then required for sales without concessions. Fannie Mae does not accept positive concession adjustments; concessions are handled with negative adjustments to the comparables that had them.
Common is not cash-equivalent
A concession being common does not make the inflated price real; the adjustment follows the price effect, not the popularity.
How to use: Use this when an answer argues that typical concessions need no adjustment.
Exam Tip
For Fannie Mae concession questions, remember two points: adjustments are negative only, and typicality does not remove the need for them.
Common Mistakes to Avoid
- -Skipping concession adjustments because concessions are typical in the area
- -Making positive adjustments to comparables that had no concessions
- -Applying a fixed percentage cutoff instead of measuring the price effect
Concept Deep Dive
Analysis
This question tests Fannie Mae guidance on sales and financing concessions in comparables. The key point is that typicality in a market segment does not decide whether a negative concession adjustment is needed. Large concessions can be common and still push sale prices above the value of the real estate.
Background Knowledge
A seller concession can raise the recorded price of a sale without increasing the value of the real estate itself. Fannie Mae requires negative adjustments to comparables equal to the price increase attributable to concessions. It does not permit positive adjustments for concessions.
Real-World Application
In a new-construction subdivision, builders routinely pay large closing costs for buyers. An appraiser analyzes resales without concessions and finds that sales with credits closed at higher prices. She makes negative adjustments to those comparables even though most builder sales included a credit.
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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A single-family home sold for $400,000. The buyer paid $40,000 in cash, obtained a $200,000 first mortgage from a bank at the market interest rate, and gave the seller a $160,000 second mortgage at 3% when similar second mortgages carried 7%. Local note investors pay about 80% of face value for seller-carried notes on these terms. What is the cash equivalent price of this sale?