In a subdivision where about half the homes have detached two-car garages, an appraiser estimates the depreciated cost of a comparable's 3-year-old garage at $28,000. Two pairs of recent sales of otherwise similar homes, each pair differing only by a detached two-car garage, show price differences of $17,000 and $19,000. The subject has no garage. What garage adjustment to the comparable does the evidence best support?
Correct Answer
B) -$18,000
Adjustments must reflect the market's reaction to a difference, and the two pairs show buyers pay about $18,000 for a garage here, not its $28,000 depreciated cost. Cost analysis is useful when no market evidence exists, but it is not market derived, so the paired sales take priority. The comparable has the garage, so the adjustment is -$18,000; -$17,000 discards one of two consistent pairs, and $0 ignores clear market evidence.
Why This Is the Correct Answer
Option B is correct because two clean pairs show buyers pay $17,000 and $19,000 for a garage, about $18,000. Adjustments should reflect the market's reaction, and the $28,000 cost figure is not market derived. The comparable has the garage the subject lacks, so the adjustment is -$18,000.
Why the Other Options Are Wrong
Option A: -$28,000
Option A, -$28,000, uses the garage's depreciated cost. The paired sales show buyers pay about $18,000, and cost analysis gives way to direct market evidence when it exists.
Option C: -$17,000
Option C, -$17,000, relies on the lower pair alone. Both pairs differ only by the garage and are equally reliable, so discarding the $19,000 pair throws away half the evidence; together they indicate about $18,000.
Option D: $0
Option D, $0, makes no adjustment because the cost and market figures disagree. Both indicate the garage adds value, and the pairs show about $18,000, so leaving the difference unadjusted ignores clear evidence.
Market beats cost when present
If sales tell you what buyers pay, use it; cost is the stand-in for when the market is silent.
How to use: Use this when a question gives both a cost figure and paired sales for the same feature.
Exam Tip
When clean pairs agree closely, use the amount they jointly support rather than one pair alone or the cost figure. Settle the amount first, then the sign.
Common Mistakes to Avoid
- -Using depreciated cost when paired sales are available
- -Skipping an adjustment because two indications differ
- -Relying on one pair and discarding a consistent second pair
Concept Deep Dive
Analysis
The question asks the candidate to weigh a cost indication against direct market evidence. When matched sales show what buyers pay for a feature, that market reaction is the better support; depreciated cost is a fallback that may or may not equal value. The candidate also needs the right sign for a comparable that has the feature.
Background Knowledge
Cost analysis can support an adjustment, particularly for physical features, but its shortcoming is that cost may differ from what buyers pay. Paired sales analysis isolates the market's reaction to a single difference. Lender guidance expects market-based adjustments that reflect buyers' reaction to differences between properties.
Real-World Application
An appraiser prices a new detached garage at a contractor's depreciated cost, then finds two subdivision pairs that differ only by a garage. Because the pairs show a lower market premium, the appraiser adjusts at the paired-sales figure and reports the cost estimate as a cross-check.
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
Which unit of comparison is typical for a hotel?
Next Question
A two-bedroom condominium unit in a 1990s complex is the subject of an appraisal. An analysis of 1,240 one-unit sales of all types in the county over the past 12 months shows values rising 0.5% per month. Over the same period, 31 sales of units in the subject's complex and two nearby complexes, which buyers treat as interchangeable and which seldom compete with detached homes, show values rising 0.1% per month. Comparable 2, a unit in one of those complexes, went under contract at $250,000 six months before the effective date. What time adjustment applies to Comparable 2, at a simple rate?