The subject, a three-bedroom ranch, has five recent sales in its subdivision. Sale A was a transfer from a mother to her son; it was never listed and closed 14% below the other sales. Sale B was a resale by a relocation company that had bought the home from a transferred employee; it was listed on the MLS for 45 days, sold to an unrelated buyer with no concessions, and closed within the range of the other sales. How should the appraiser treat these two sales?
Correct Answer
A) Exclude Sale A and use Sale B once its marketing and terms are verified
Conditions of sale ask whether the parties acted at arm's length on the open market. The family transfer had no market exposure and a non-market motive, and with other sales available it should not be used. The relocation company's resale was openly marketed to an unrelated buyer at market terms, so after verification it is a valid comparable. Pushing Sale A into the range is circular, and rejecting Sale B because of the seller's identity ignores how it was actually sold.
Why This Is the Correct Answer
Option A is correct because Sale A, a never-listed transfer between mother and son at 14% below the market, does not meet the conditions of a market value sale and other sales are available. Sale B was exposed on the MLS for 45 days and sold to an unrelated buyer without concessions, so once verified it reflects market behavior.
Why the Other Options Are Wrong
Option B: Use Sale A with an upward adjustment that brings it into the range of the other sales
Option B adjusts Sale A upward until it falls in the range of the other sales. That adjustment is not measured from market evidence of the family discount; it simply forces the sale to agree with the others, so it adds no independent evidence of value.
Option C: Exclude both sales because neither seller was a typical owner-occupant
Option C excludes both sales because neither seller was a typical owner-occupant. The seller's identity does not decide the issue; Sale B was openly marketed to an unrelated buyer on typical terms, so it is valid market evidence once verified.
Option D: Use Sale A without adjustment and exclude Sale B as a corporate transfer
Option D uses the family transfer without adjustment and drops the relocation resale. That keeps the sale that fails the arm's length test and discards the one that meets it, the reverse of the correct treatment.
Judge the sale, not seller
Ask how the home was exposed and who bargained on each side. Open marketing to an unrelated buyer passes; a private family deal at a discount does not.
How to use: Use this whenever a comparable involves relatives, a relocation company, an estate or another unusual seller.
Exam Tip
When enough arm's length sales exist, the expected answer is to set aside a non-market sale rather than adjust it into line.
Common Mistakes to Avoid
- -Rejecting every relocation-company sale on sight
- -Adjusting a related-party sale until it matches the other sales
- -Assuming a recorded sale is arm's length without verification
Concept Deep Dive
Analysis
The question tests judgment on the conditions-of-sale element: the test is how the property was exposed and negotiated, not who the seller was. A related-party transfer without exposure fails the market value conditions, while a corporate seller that markets the home normally to an unrelated buyer passes. With adequate other sales, the failed sale is set aside rather than adjusted.
Background Knowledge
Market value assumes open-market exposure and typically motivated, informed parties with neither under pressure. Sales between relatives, related companies or parties under duress may not reflect those conditions. A relocation company's first purchase from the employee is usually not a market sale, but its later resale on the open market often is.
Real-World Application
Public records show two transfers on the same street: one between family members for well under market, another from a relocation firm. The appraiser calls the listing agent, confirms the relocation resale had full MLS exposure and typical terms, uses it, and notes in the report why the family transfer was excluded.
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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