In a market where 40% of transactions close with seller concessions averaging 2%, a comparable with no concessions:
Correct Answer
C) May need no concession adjustment; investigate its actual terms and market relevance
A no-concession sale does not require an automatic adjustment to match a market-average concession percentage. Verify actual terms and relevant market effects; the mere prevalence of concessions neither invalidates the sale nor establishes a price adjustment.
Why This Is the Correct Answer
Option C is correct because a sale with no concessions has no concession effect to remove, so it may need no concession adjustment at all. Fannie Mae states that the need for, and amount of, concession adjustments is not based on how typical concessions might be in a market segment. The appraiser should still verify the sale's actual terms and its market relevance.
Why the Other Options Are Wrong
Option A: Must receive the market-average upward adjustment
Option A is wrong because it says the comparable must receive the market-average upward adjustment. Concession adjustments reflect the effect of concessions in that particular sale, and the market prevalence of concessions does not create an adjustment for a sale that had none.
Option B: Must be excluded because other sales had concessions
Option B is wrong because it says the sale must be excluded because other sales had concessions. The terms of other transactions do not make a clean sale unusable; it is evaluated on its own terms and comparability.
Option D: Must receive a downward adjustment for being a clean sale with no seller concessions
Option D is wrong because it requires a downward adjustment for being a clean sale with no seller concessions. Concession adjustments remove the price effect of concessions that were actually present, and a sale without concessions has no such effect to remove.
Adjust what happened, not averages
Concession adjustments follow the deal, not the neighborhood average. If this sale had no concessions, there is no concession effect in its price to remove.
How to use: Use this when a question mentions a market-wide concession rate alongside a comparable with different terms.
Exam Tip
Watch for options that turn a market statistic, such as an average concession rate, into a required adjustment for an individual sale.
Common Mistakes to Avoid
- -Adding a market-average concession adjustment to a sale that had no concessions
- -Discarding a clean sale because concessions are common in the market
- -Basing concession adjustments on how typical concessions are rather than their effect on that sale's price
Concept Deep Dive
Analysis
This question tests whether the prevalence of concessions in a market creates a required adjustment for a sale that had none. Fannie Mae ties concession adjustments to the difference between what a comparable sold for with concessions and what it would have sold for without them, not to how typical concessions are. A clean sale therefore may need no concession adjustment, but its actual terms still need verification.
Background Knowledge
Seller or financing concessions can inflate a reported sale price above what the property would have sold for on typical terms. Fannie Mae requires adjustments that approximate the market's reaction to the concessions in each comparable, and it states that the need and amount are not based on how typical concessions are in the market area.
Real-World Application
In a market where many sellers are paying closing costs, an appraiser finds a comparable that closed with no seller contributions. After confirming the terms with the listing agent, he leaves the concession line at zero and adjusts that sale only for supported physical and market differences.
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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