For a 40-year-old house, the sales approach indicates $410,000 from strong verified competing sales. The $445,000 cost indication uses poorly supported depreciation estimates. What is the most defensible next step?
Correct Answer
C) Investigate the gap and explain reliance on the sales evidence
The stated strong verified comparable evidence supports greater reliance on the sales comparison approach when the cost indication depends on weak depreciation estimates. Building age alone does not establish an approach’s reliability. Investigate the discrepancy and explain the reconciliation.
Why This Is the Correct Answer
Option C is correct because the appraiser should investigate the $35,000 gap between $410,000 and $445,000 and then explain greater reliance on the strong, verified sales evidence. The cost indication rests on poorly supported depreciation, which is the hardest part of the cost approach to estimate. Reconciliation weighs the reliability of each approach and explains the result.
Why the Other Options Are Wrong
Option A: Average the two indications equally to reach the final value
Option A, averaging the two indications equally, gives ($410,000 + $445,000) ÷ 2 = $427,500. Equal weighting ignores the clear difference in reliability between strong sales data and weak depreciation estimates.
Option B: Choose the cost indication because it is the higher of the two
Option B, choosing the cost indication because it is the higher of the two, selects $445,000 for no valid reason. Being higher says nothing about reliability, and this indication rests on poorly supported depreciation.
Option D: Reject the sales evidence because the house is 40 years old
Option D, rejecting the sales evidence because the house is 40 years old, is wrong because building age alone does not make an approach unreliable. Older homes often have plenty of competing sales, and the stem says the sales here are strong and verified.
Best data gets weight
In reconciliation, the approach with the strongest supporting data and closest link to buyer behavior earns the most weight.
How to use: Use this when a question asks how to reconcile two or three differing value indications.
Exam Tip
Choose answers that investigate differences and explain reliance; avoid answers that average blindly or pick an indication because it is higher.
Common Mistakes to Avoid
- -Averaging approaches equally regardless of data quality
- -Favoring the higher indication
- -Assuming an older home cannot be valued by sales comparison
Concept Deep Dive
Analysis
This question tests final reconciliation between approaches. The greatest weight goes to the approach that most reliably reflects how buyers in the market value the subject. Strong verified sales and weakly supported depreciation point toward relying more on the sales comparison approach.
Background Knowledge
In final reconciliation, the appraiser weighs each approach by the quality and quantity of its data and how well it reflects buyer behavior. For older homes the cost approach often depends on large, hard-to-support depreciation estimates.
Real-World Application
An appraiser values a 1980s home with many recent nearby sales. The cost approach comes in higher because depreciation for an older house is hard to measure, so the appraiser relies mainly on the sales comparison approach and explains why.
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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Previous Question
A transaction has closed but recording is pending. Reliable permitted sources verify its price, date and terms, and no applicable assignment condition requires prior recording. How may the appraiser treat the sale?
Next Question
Unlike the subject duplex, a comparable duplex has a second-floor half bath. The seller's records show the half bath cost $22,000 to add in 2016. A contractor's current estimate to build the same half bath is $15,000, which includes $800 in permit fees, and the appraiser estimates 20% depreciation. Market data show buyers in this area pay about the depreciated cost of an added bath. What adjustment applies to the comparable?