In a market with few sales, an appraiser considers a sale from a competing neighborhood. Using it requires:
Correct Answer
D) Explain its comparability and any supported location adjustment
Verify that the other neighborhood competes with the subject and analyze any location-related market difference. A supported zero adjustment can be appropriate when no price effect is established; crossing a boundary alone does not require a nonzero adjustment or client permission.
Why This Is the Correct Answer
Option D is correct because the appraiser must explain why the sale from a competing neighborhood is comparable and make a location adjustment if the market supports one. A supported zero adjustment can be appropriate when no price effect is found, since crossing a boundary alone does not require a nonzero adjustment.
Why the Other Options Are Wrong
Option A: Exclude the sale, because it lies outside the subject’s neighborhood
Option A excludes the sale because it lies outside the subject's neighborhood. Fannie Mae permits sales from outside the market area when similar sales are not available, provided the appraiser explains the choice.
Option B: Add a fixed amount for crossing the neighborhood boundary line
Option B adds a fixed amount for crossing the neighborhood boundary line. A location adjustment must reflect market evidence of a price difference, not a set charge for a boundary.
Option C: Assume all neighborhoods are interchangeable without any analysis
Option C assumes all neighborhoods are interchangeable without analysis. The appraiser must verify that the other neighborhood actually competes with the subject and examine any location difference.
Explain it, then adjust if warranted
Going outside the neighborhood is allowed if you explain why the sale competes and adjust for location only when the market shows a difference.
How to use: Use this when an answer either bans outside sales or assumes they need a fixed location adjustment.
Exam Tip
Look for the choice that pairs commentary with a supported, if warranted, location adjustment.
Common Mistakes to Avoid
- -Refusing to use any sale outside the neighborhood boundary
- -Applying a standard location adjustment without market data
- -Using outside sales without explaining their comparability
Concept Deep Dive
Analysis
This question tests what is required when using a comparable from outside the subject's neighborhood. Fannie Mae allows expanding the search when similar sales are lacking, but the appraiser must explain the rationale and make location adjustments if warranted. The key is analysis and explanation, not exclusion or a fixed boundary charge.
Background Knowledge
Neighborhood boundaries drawn by appraisers are analytical tools, and competing areas can supply valid comparables. When the search expands, the appraiser explains the selection and analyzes whether location affects price. Adjustments are made only when supported by the market.
Real-World Application
A rural subject has had only two sales in its area in a year. The appraiser uses a sale from a similar nearby community, explains that it draws the same buyers, and finds no measurable location difference, so no location adjustment is made.
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