A comparable price includes material nonrealty assets. What should a real-property appraiser do?
Correct Answer
D) Identify the included assets and analyze their effect to compare the relevant real-property interest
Identify relevant personal property, trade fixtures and intangible assets included in the appraisal or transaction and analyze their effect where needed. Material nonrealty in a comparable price cannot simply be ignored when estimating the relevant real-property interest. Identify and support any necessary separation without assuming every fixture is nonrealty.
Why This Is the Correct Answer
Option D is correct because USPAP requires identifying personal property, trade fixtures or intangible assets included in an appraisal and analyzing the effect on value of such non-real property assets. When a comparable's price includes material nonrealty, the appraiser must identify those assets and analyze their effect to compare the relevant real property interest. Any separation should be supported, without assuming every fixture is nonrealty.
Why the Other Options Are Wrong
Option A: Ignore them because they are not real property
Option A is wrong because ignoring the assets because they are not real property would leave their value buried in the comparable price. That distorts the real property comparison.
Option B: Assume their contribution to the price is zero
Option B is wrong because assuming their contribution to the price is zero is unsupported when the assets are material. Their effect must be analyzed, not assumed away.
Option C: Treat the entire bundled sale price as real property, without investigating any of the included assets
Option C is wrong because treating the entire bundled sale price as real property without investigating any of the included assets overstates the real property indication. Investigation is needed to compare like with like.
Unbundle before you compare
If a sale price includes extras, unbundle them before comparing it to the real estate you are valuing.
How to use: Use this for questions about comparables that include personal property or business value.
Exam Tip
Choose the option that identifies and analyzes nonrealty components over options that ignore them or assume them away.
Common Mistakes to Avoid
- -Treating a bundled price as real property value
- -Assuming personal property contributes nothing
- -Classifying every fixture as personal property
Concept Deep Dive
Analysis
This question tests treatment of non-real property assets included in a comparable's price. USPAP requires identifying personal property, trade fixtures and intangibles included in the appraisal and analyzing their effect on value. A comparable that bundles such assets needs analysis so it can be compared to the real property interest being appraised.
Background Knowledge
Sales of hotels, restaurants and other operating properties often include furniture, equipment, trade fixtures and business goodwill. Real property appraisers must recognize these components so the value reflects only the real property interest when that is the assignment. Distinguishing fixtures that are real property from trade fixtures requires analysis.
Real-World Application
A comparable vacation home sold fully furnished, with a golf cart and a small boat included. The appraiser verifies what was included with the buyer and the listing agent, analyzes the contribution of those items, and adjusts so the comparison reflects real property only.
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