Seller-paid rate buydowns spread through a market as rates spike. For comparables sold with buydowns, the appraiser should:
Correct Answer
D) Analyze the actual price effect and adjust only where supported
Concession prevalence does not eliminate analysis. Determine the buydown’s actual effect on transaction price and use a supported adjustment if warranted; cost and computed financing benefit are not automatically the market effect. No price effect may support zero adjustment.
Why This Is the Correct Answer
Option D is correct because the appraiser must determine the buydown's actual effect on the comparable's price in that market and adjust only where the evidence supports it. The cost of a buydown or its computed financing benefit is not automatically the market effect, and if no price effect is found, a zero adjustment may be supported.
Why the Other Options Are Wrong
Option A: Ignore every buydown once it is common
Option A says to ignore each buydown once buydowns become common. Prevalence of concessions does not eliminate the need to analyze their impact on price; analysis is still required.
Option B: Add every buydown’s cost to price
Option B says to add each buydown's cost to price. Concession adjustments reflect the market's price reaction, which is not automatically equal to the cost, and adding cost would also move the price in the wrong direction for a concession that inflated it.
Option C: Convert all sales to last year’s interest rates regardless of relevance
Option C says to convert all sales to last year's interest rates regardless of relevance. Concession adjustments are based on the market at the time of each sale, not on an arbitrary prior-year rate standard.
Measure effect, not cost
For any concession, ask how much it changed the price buyers paid, not how much it cost the seller.
How to use: Use this when an answer applies a concession's full cost as the adjustment without market support.
Exam Tip
Choices that ignore all concessions or apply a fixed rule to all of them tend to skip the required market analysis.
Common Mistakes to Avoid
- -Assuming a common concession no longer needs analysis
- -Using the dollar cost of the buydown as the adjustment
- -Making a concession adjustment without market evidence
Concept Deep Dive
Analysis
This question tests how to handle sales or financing concessions such as seller-paid rate buydowns. Fannie Mae requires comparables with concessions to be adjusted to reflect their impact, if any, on the sales price based on the market at the time of sale. The reasoning is to measure the actual price effect rather than ignore the concession or assume its cost equals its effect.
Background Knowledge
Sales or financing concessions can cause a recorded price to differ from what the property would have sold for on typical terms. Adjustments for concessions should reflect the market reaction to the concession at the time of sale. The amount of the concession and its price effect can differ.
Real-World Application
In a market where rates jumped, many sellers paid for temporary buydowns. The appraiser compares sales with and without buydowns and verifies terms with the agents to judge whether buyers paid more because of the buydown before deciding on an adjustment.
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?
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An appraiser is analyzing Comparable 2 for a single-family home appraisal and notes four facts: (I) it went under contract five months before the effective date in a rising market; (II) it has 300 square feet more living area than the subject; (III) the seller carried a second mortgage for the buyer; (IV) it sits on a corner lot. Which facts are transactional elements of comparison?
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