On the URAR form (Fannie Mae 1004), what is the purpose of the 'Sales or Financing Concessions' adjustment in the comparable sales grid?
Correct Answer
C) Reflect the price effect, if any, of seller-paid costs or incentives
Analyze seller costs, buydowns and incentives for their actual effect on price. Neither their cost nor a nominal mortgage-rate difference automatically equals the market adjustment. A concession may have no demonstrated price effect; investigate and explain the support.
Why This Is the Correct Answer
Option C is correct because comparable sales that include sales or financing concessions must be adjusted to reflect the impact, if any, on their sale prices based on the market at the time of sale. The adjustment reflects the price effect of the concession, which may differ from its cost and may be zero.
Why the Other Options Are Wrong
Option A: Deduct each dollar the seller paid, on a dollar-for-dollar basis
Option A is wrong because it deducts each dollar the seller paid on a dollar-for-dollar basis. The adjustment reflects the market's price reaction to the concession, which may be more or less than its nominal cost.
Option B: Equalize the mortgage interest rate of each comparable sale
Option B is wrong because it uses the adjustment to equalize each comparable's mortgage interest rate. A nominal rate difference does not by itself equal a market price adjustment; the concession line measures the price effect of concessions.
Option D: Substitute the buyer’s insurance costs for analysis of the sale price
Option D is wrong because it substitutes the buyer's insurance costs for analysis of the sale price. Buyer insurance costs are not the subject of the concessions adjustment, which addresses seller-paid costs or incentives that affected price.
Effect, not expense
The concession adjustment measures the concession's effect on price, not what the concession cost the seller.
How to use: Use this when a question asks how to size a concession adjustment.
Exam Tip
Watch for answers that turn a concession's cost into a dollar-for-dollar adjustment; the market reaction is what counts.
Common Mistakes to Avoid
- -Deducting the full concession dollar for dollar
- -Treating an interest rate difference as the price adjustment
- -Assuming any concession necessarily changed the sale price
Concept Deep Dive
Analysis
This question tests the purpose of the sales or financing concessions adjustment on the URAR grid. The adjustment reflects the effect, if any, of seller-paid costs or incentives on a comparable's sale price, based on the market at the time of sale. It is not a dollar-for-dollar deduction or a rate-equalizing calculation.
Background Knowledge
Concessions such as seller-paid closing costs or interest rate buydowns can push a reported sale price above what the property would have brought on typical terms. The appraiser investigates the concession and adjusts only for its supported effect on price.
Real-World Application
A comparable's seller paid a portion of the buyer's closing costs. The appraiser compares sales with and without similar contributions and finds the market reaction was smaller than the amount paid, so she adjusts for the supported effect.
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