In a market where sellers customarily pay a 1% loan origination fee for buyers, a comparable seller paid no fees or concessions. How does Fannie Mae view this sale?
Correct Answer
D) It is a cash-equivalent sale and can be used if it is a good indicator
Fannie Mae gives this example: if virtually all sellers pay a 1% origination fee and one seller paid none, that sale is a cash-equivalent sale. Such sales should be used if they are the best indicators, and positive concession adjustments are not acceptable.
Why This Is the Correct Answer
Option D is correct because Fannie Mae gives this exact example: when virtually all sellers pay a 1% origination fee and one seller paid nothing, that sale is considered a cash-equivalent sale in that market. Such a sale can be used if it is a good indicator of value. No concession adjustment is made to it.
Why the Other Options Are Wrong
Option A: It needs a positive adjustment because the seller paid less than usual
Option A is wrong because it calls for a positive adjustment since the seller paid less than usual. Fannie Mae does not accept positive adjustments for sales or financing concessions, and the sale is already considered cash equivalent.
Option B: It must be excluded because it is atypical for the market
Option B is wrong because it says the sale must be excluded as atypical. Fannie Mae treats it as a cash-equivalent sale that can be used if it is a good indicator.
Option C: It needs a negative adjustment equal to 1% of the price
Option C is wrong because it calls for a negative adjustment equal to 1% of the price. The seller paid no concessions, so there is no concession effect to remove from this sale's price.
No concessions means cash equivalent
A seller who paid nothing toward the buyer gave a cash-equivalent sale, so nothing is added or removed.
How to use: Use this when a comparable lacks concessions that are common in its market.
Exam Tip
For Fannie Mae concession questions, remember positive concession adjustments are not acceptable.
Common Mistakes to Avoid
- -Adding a positive adjustment because a seller paid less than typical
- -Excluding a good sale because it lacked customary concessions
- -Deducting a concession that the seller did not pay
Concept Deep Dive
Analysis
This question tests Fannie Mae's view of a sale where the seller paid no concessions in a market where sellers customarily pay a 1% origination fee. Fannie Mae treats such a sale as cash equivalent. It also does not accept positive adjustments for concessions.
Background Knowledge
Under Fannie Mae guidance, concession adjustments reflect the market's reaction to concessions and are made as negative adjustments to comparables. A sale without concessions is treated as cash equivalent. Comparables are chosen for being the best indicators of value, not for having typical concessions.
Real-World Application
In a market where sellers routinely pay a buyer's origination fee, an appraiser finds a comparable where the seller paid nothing. The appraiser treats it as a cash-equivalent sale and uses it because it is one of the best indicators. No positive adjustment is made for the missing concession.
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?
People Also Study
Real Estate Market
13.6% of exam
Property Description
11.8% of exam
Land or Site Valuation
4.5% of exam
Cost Approach
13.6% of exam
Income Approach
8.2% of exam
Previous Question
An appraiser is valuing a vacant lakefront residential lot with 90 feet of lake frontage and 19,800 square feet of area. Three lakefront lots on the same lake sold recently: Lot 1, with 100 front feet and 23,000 square feet, for $250,000; Lot 2, with 80 front feet and 20,000 square feet, for $200,000; and Lot 3, with 120 front feet and 18,000 square feet, for $300,000. Agents report that buyers here compare lots by their lake frontage, and all four lots have the same west-facing view. What value do these sales indicate for the subject lot?
Next Question
Which fact most directly warrants investigating atypical seller motivation?