The subject property, a 1980s two-story home, has no patio. Comparable 1 has a one-year-old paver patio of the size and quality most homes in the neighborhood have. The one recent pair of sales that differ by a patio also differ in gross living area, condition and lot size, and the market gives no measure of those other differences. A local contractor has quoted a current price to build the same patio. Which evidence better indicates the patio adjustment to Comparable 1?
Correct Answer
A) The depreciated cost of building the same patio today
A pair of sales isolates a feature only when the two sales are alike in other respects or have already been adjusted for the other differences; this pair differs in size, condition and lot size, and none of those can be measured, so its price gap mixes several influences. The patio is new and typical for the market, the setting in which cost less depreciation tracks contribution most closely, so cost analysis is the better support here. Assessed values are set for taxation, not measured from buyers' reaction to a patio, and a rule-of-thumb percentage is not market evidence at all.
Why This Is the Correct Answer
Option A is correct because the patio is new and typical for the neighborhood, so its current cost less a small amount of depreciation is a reasonable measure of what it adds. The one pair of sales differs in gross living area, condition and lot size as well, and with none of those measured, its price difference cannot be credited to the patio.
Why the Other Options Are Wrong
Option B: The price difference between the two paired sales
Option B relies on the price difference between the two paired sales. Those sales differ in size, condition and lot size as well as the patio, and none of those differences has been adjusted, so the gap reflects several influences at once.
Option C: The difference between the two homes' assessed values
Option C uses the difference between the two homes' assessed values. Assessments are made for property taxation, often on a schedule that lags the market, and they do not measure what buyers pay for a patio.
Option D: A rule-of-thumb percentage of the comparable's price
Option D applies a rule-of-thumb percentage of the comparable's price. A fixed percentage is not drawn from any evidence about this patio or this market, so it is weaker than a current cost figure for a typical, new feature.
Clean pair or current cost
A pair with several unmeasured differences is not a clean pair; for a new, typical feature, current cost less depreciation is often the closer measure.
How to use: Use this when a question offers a single mismatched pair against a cost figure for a new, ordinary feature.
Exam Tip
Do not assume sale evidence always beats cost. Check whether the pair truly isolates the feature and whether the feature is new and typical.
Common Mistakes to Avoid
- -Using a pair of sales that differ in several unadjusted elements
- -Treating assessed values as market evidence for a feature
- -Assuming cost evidence is never better than a paired sale
Concept Deep Dive
Analysis
The question tests when cost evidence should outweigh a paired sale. A pair is only as good as its match: if the two sales differ in several elements that cannot be adjusted, the price gap does not isolate the feature. A new feature of a kind the market expects is the case where depreciated cost is most likely to equal what buyers pay.
Background Knowledge
Paired sales analysis requires sales alike in every respect except the feature, or sales already adjusted for their other differences. Cost analysis bases an adjustment on cost indicators such as replacement cost less depreciation. Its weakness is that cost may differ from value, but that gap is smallest for new improvements that match market standards.
Real-World Application
An appraiser in an older suburb finds that the only sale pair with and without a patio also differs in size and condition. She prices the patio with a local contractor, deducts a small amount for its one year of wear, and explains in the report why the pair was not used.
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?
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An appraiser finds a recent new home whose indicated price combines the separate vacant lot purchase with the contract price for building the house, as is common in construction-to-permanent loans. How may this transaction be used in a Fannie Mae appraisal?
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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?