Market analysis shows finished above-grade area sells for about $100 per square foot. An appraiser instead uses a $20 per square foot rule of thumb. Under Fannie Mae guidance, this adjustment is:
Correct Answer
C) Inappropriate, because adjustments must reflect the market’s reaction
Adjustments must be market based. Fannie Mae gives exactly this example: a $20 per square foot rule-of-thumb adjustment is inappropriate when market analysis indicates $100 per square foot. Consistency or conservatism does not cure an unsupported rate.
Why This Is the Correct Answer
Option C is correct because Fannie Mae requires the appraiser's adjustments to reflect the market's reaction to differences between properties. Fannie Mae uses this exact case as an example: a $20 per square foot rule-of-thumb adjustment is inappropriate when market analysis indicates $100 per square foot.
Why the Other Options Are Wrong
Option A: Acceptable, because a smaller adjustment is more conservative
Option A says the $20 rate is acceptable because a smaller adjustment is more conservative. An adjustment far below what the market shows is not conservative; it is simply unsupported and distorts the adjusted prices.
Option B: Acceptable, if the same rate is used for each comparable in the grid
Option B says the rate is acceptable if the same $20 rate is used for each comparable. Applying a wrong rate consistently repeats the error across the grid rather than fixing it.
Option D: Inappropriate, because square-footage differences are not adjusted
Option D reaches the right label, inappropriate, but for a false reason: that square-footage differences are not adjusted. Differences in finished above-grade area are adjusted; the problem is that the rate used is not market supported.
Market, not memory
An adjustment comes from what the market shows, not from a remembered rule of thumb.
How to use: Use this when an answer choice defends an adjustment as customary, consistent or conservative instead of market supported.
Exam Tip
Check the reason given, not just the verdict; an option can say inappropriate for the wrong reason.
Common Mistakes to Avoid
- -Treating a smaller adjustment as automatically safer
- -Believing consistent use makes an unsupported rate acceptable
- -Relying on rules of thumb instead of market data
Concept Deep Dive
Analysis
This question tests whether adjustments must be market based. When market analysis shows a feature is worth $100 per square foot, a $20 rule-of-thumb figure does not reflect how buyers react. Neither consistency nor conservatism makes an unsupported rate acceptable.
Background Knowledge
Market-based adjustments are derived from evidence such as paired sales, statistical analysis or other market data. Rules of thumb may be convenient but do not show what buyers in the subject's market actually pay for a difference. Fannie Mae expects adjustments to be supported by the market.
Real-World Application
An appraiser has long used $20 per square foot for size differences. A review of recent paired sales in the subject's neighborhood shows buyers pay about $100 per square foot, so the appraiser revises the grid to use the market-supported rate.
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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Comparable 1 sold for $300,000 with adjustments of +$12,000 and −$8,000. Comparable 2 sold for $310,000 with a single −$9,000 adjustment. Using absolute gross adjustment as a percentage of sale price, which sale is the better comparability guide, and why?