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) To account for seller-paid costs, buydowns or incentives
Why this is correct: The URAR's 'Sales or Financing Concessions' adjustment is a required step to reflect the true cash-equivalent transaction price. Seller-paid closing costs, interest rate buydowns, or other incentives effectively reduce the net price paid by the buyer. The adjustment ensures comparables reflect market value, not inflated prices due to financing incentives. Why the other choices are wrong: 'To normalize for differing mortgage rates at the sale' is incorrect; mortgage rate differences are not directly adjusted in this grid cell. 'To adjust for differences in property insurance costs' is wrong; insurance costs are not addressed in this adjustment. 'To adjust for property tax differences between sales' is incorrect; property taxes are not adjusted via this grid item. Exam tip: Remember, concessions are financial incentives from the seller; adjust the comparable's sale price downward to account for them.
Why This Is the Correct Answer
Option B correctly identifies that Sales or Financing Concessions adjustments account for seller-paid closing costs, buydowns, and other financial incentives that affect the true sale price. These concessions artificially inflate the recorded sale price because they represent additional value the seller provided beyond the property itself. The adjustment removes this artificial inflation to reveal the true market value indication. This ensures all comparable sales are analyzed on the same basis - what buyers actually paid net of any seller assistance.
Why the Other Options Are Wrong
SCAB Method
Remember SCAB: Seller Concessions Artificially Boost the recorded sale price, so they must be adjusted downward to show true market value.
How to use: When you see 'Sales or Financing Concessions' on the exam, think SCAB - the seller gave something extra that boosted the price artificially, so you need to subtract it to get the real market indication.
Exam Tip
Look for keywords like 'seller-paid,' 'buydown,' 'closing costs,' or 'financial incentives' in questions about financing concessions - these always point to adjustments that reduce the comparable's indicated value.
Common Mistakes to Avoid
- -Confusing financing concessions with other types of adjustments like location or condition
- -Failing to recognize that concessions require downward adjustments to the comparable sale price
- -Thinking that market interest rate differences are the same as seller-provided rate buydowns
Concept Deep Dive
Analysis
The Sales or Financing Concessions adjustment is a critical component of the sales comparison approach that ensures comparable sales reflect true market value rather than artificially inflated or deflated contract prices. When sellers provide financial incentives like paying buyer's closing costs, offering interest rate buydowns, or providing other monetary concessions, the recorded sale price doesn't accurately represent what a buyer actually paid out-of-pocket. These concessions effectively reduce the net cost to the buyer, meaning the comparable sale appears higher than its true market indication. Appraisers must identify and adjust for these concessions to maintain the integrity of their value conclusions and ensure all comparables are analyzed on an equal footing.
Background Knowledge
The URAR (Uniform Residential Appraisal Report) form 1004 is the standard appraisal form used by Fannie Mae and most lenders for single-family residential properties. The comparable sales grid requires appraisers to make various adjustments to ensure each comparable sale reflects the same market conditions and terms as the subject property being appraised.
Real-World Application
In practice, if a comparable sold for $300,000 but the seller paid $5,000 in buyer's closing costs, the appraiser would make a -$5,000 adjustment for financing concessions, indicating the buyer effectively paid $295,000 for the property. This adjusted figure better represents true market value for comparison purposes.
More Sales Comparison Questions
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