In a market with many foreclosure sales, when may an appraiser use a foreclosure as a comparable for a Fannie Mae appraisal?
Correct Answer
D) When it is among the best available sales and its differences are addressed
Foreclosures and short sales may be used if they are the best and most appropriate sales available. The appraiser must address how common such sales are and their impact, and must identify differences such as condition and stigma rather than assume the sale equals the subject.
Why This Is the Correct Answer
Option D is correct because Fannie Mae accepts foreclosures and short sales as comparables when market data indicate they are the best and most appropriate sales available. The appraiser must address how common such sales are and their effect on the market. Differences such as condition and stigma must be identified and addressed rather than assuming the foreclosure matches the subject.
Why the Other Options Are Wrong
Option A: Not at all, because a foreclosure is not an arm’s-length transaction
Option A is wrong because foreclosures are not excluded altogether for not being arm's length. Fannie Mae states it is acceptable to use foreclosures and short sales as comparables when they are the best and most appropriate sales available.
Option B: Whenever it closed recently, with no further analysis of its condition needed
Option B is wrong because a recent closing date does not remove the need to analyze a foreclosure's condition and other differences. Foreclosures often differ from the subject in condition, and those differences must be identified and addressed.
Option C: After adding the lender’s holding costs back to the recorded sale price
Option C is wrong because adding the lender's holding costs back to the recorded sale price is not how a foreclosure becomes usable. The sale is used based on whether it is among the best available sales, with differences analyzed through supported adjustments.
Best available, differences addressed
A foreclosure can join the grid if it is among the best sales available and you deal with its differences. Both parts are needed.
How to use: Use this two-part check whenever a question asks whether a distressed sale can serve as a comparable.
Exam Tip
Look for the answer that permits foreclosures conditionally, based on market data and analysis. Options that ban them outright or accept them with no analysis are usually wrong.
Common Mistakes to Avoid
- -Refusing to use any foreclosure as a comparable
- -Using a foreclosure without analyzing its condition
- -Ignoring how common distressed sales are in the market
Concept Deep Dive
Analysis
This question tests Fannie Mae's position on using foreclosures as comparables in markets where they are common. Foreclosures are not banned; they may be used when market data show they are the best and most appropriate sales available. The appraiser must still analyze their prevalence, impact and differences such as condition.
Background Knowledge
Distressed sales such as foreclosures and short sales can reflect different motivations, marketing and condition than typical sales. In markets where they make up a meaningful share of activity, they may be the best evidence of value, so the appraiser analyzes their prevalence and effect rather than excluding them by default.
Real-World Application
In a neighborhood where many recent sales were bank-owned, an appraiser selects one foreclosure that is close in size and location to the subject. The appraiser comments on the share of distressed sales in the market and adjusts for the foreclosure's inferior condition based on market evidence.
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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Market prices for townhouses in a planned development have been stable for the past year. The subject is a 1,400-sf end unit with a two-car garage. The appraiser rates four recent sales against it overall: Sale 1, $270,000, inferior; Sale 2, $301,000, similar; Sale 3, $305,000, similar; Sale 4, $322,000, superior. Sales 2 and 3 are end units that also have two-car garages, closed within the past six weeks and were each confirmed with the selling agent, and the appraiser finds no basis to rate either one closer to the subject than the other. Which value is most reasonable?