The subject is a duplex whose two units each have in-unit laundry hookups; its units are leased at $1,525 and $1,500 per month. Sale 3, an otherwise similar duplex, has no hookups; its units were leased at $1,450 and, to a long-time tenant, $1,300. Current market rents for similar two-bedroom units are $1,525 with hookups and $1,450 without. Duplex sales in the area show a monthly gross rent multiplier of 140. What is the amount of the laundry hookup adjustment to Sale 3?
Correct Answer
C) $21,000
The feature's value is measured with market rents, not the contract rents in place: $1,525 − $1,450 = $75 per unit, or $150 per month for two units, and $150 × 140 = $21,000. Comparing market rents with hookups to Sale 3's contract rents mixes the tenant's below-market rent into the feature adjustment ($300 × 140 = $42,000), and mixing the subject's actual rents with market rents gives $17,500. Counting one unit only gives $10,500.
Why This Is the Correct Answer
Option C is correct because market rents show the hookups add $1,525 − $1,450 = $75 per unit, or $150 per month for the duplex. Capitalized at the duplex multiplier of 140, that is $150 × 140 = $21,000.
Why the Other Options Are Wrong
Option A: $10,500
Option A, $10,500, capitalizes the $75 difference for one unit only ($75 × 140). Both units have the hookups, so the monthly difference is $150 and the adjustment is $21,000.
Option B: $17,500
Option B, $17,500, compares the subject's actual rents of $3,025 with Sale 3's market rents of $2,900, a $125 gap times 140. The subject's $1,500 lease is slightly below market, so mixing contract and market rent understates the feature; market to market gives $150 × 140 = $21,000.
Option D: $42,000
Option D, $42,000, compares market rents with hookups to Sale 3's contract rents: ($3,050 − $2,750) = $300, times 140. Sale 3's contract rents include the long-time tenant's below-market rent, which has nothing to do with the hookups; the feature alone is worth $150 × 140 = $21,000.
Market rent first, then capitalize
Before multiplying, ask whether each rent is what the market would pay today; if not, replace it with market rent.
How to use: Use this whenever a small income property in the question has a lease below or above market.
Exam Tip
When a stem mentions a long-time tenant, a relative or an old lease, expect the contract rent to be off market and work with the market rents instead.
Common Mistakes to Avoid
- -Measuring the rent difference against contract rents that include a below-market lease
- -Applying the per-unit difference to one unit of a multi-unit property
Concept Deep Dive
Analysis
The question tests whether the rent difference being capitalized isolates the feature. Contract rents reflect lease terms such as a long-time tenant's discount, so both properties must be put on market rent before the difference is measured and multiplied.
Background Knowledge
Rent in place can differ from market rent because of lease terms, tenant relationships or timing. When a rent difference is used to measure a physical feature, it is taken from market rents so that the adjustment reflects the feature and not the lease.
Real-World Application
An appraiser comparing two fourplexes finds one unit in the comparable rented to the owner's former employee at a discount. To measure the value of covered parking, the appraiser uses market rents for units with and without parking rather than the leases in place.
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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