The subject property and a comparable sale are both two-story homes with detached two-car garages built at the same time as the houses and in similar condition. A cost service shows the garage would cost $32,000 to build new, and the appraiser estimates it is 25% depreciated. Using cost analysis, what adjustment should be made to the comparable for the garage?
Correct Answer
C) No adjustment for the garage
Adjustments account for differences between the comparable and the subject. Both properties have the same garage in similar condition, so there is no difference to adjust, whatever the garage costs. Adding or subtracting its $24,000 depreciated cost, or its $32,000 cost new, would treat a shared feature as a difference.
Why This Is the Correct Answer
Option C is correct because adjustments convert each comparable's price to what it would have sold for with the subject's characteristics. The comparable already has the same garage in similar condition, so there is nothing to adjust for that feature.
Why the Other Options Are Wrong
Option A: Add $24,000 to the comparable
Option A adds $24,000 ($32,000 less 25%), but the comparable already has an equivalent garage. Adding its value would credit the comparable for something it has.
Option B: Subtract $24,000 from the comparable
Option B subtracts $24,000 as if the comparable's garage were superior. The two garages are alike in size, age and condition, so no difference exists to remove.
Option D: Add $32,000 to the comparable
Option D adds the $32,000 cost new. A cost figure, depreciated or not, applies only when the properties differ in the feature, and here they do not.
No difference, no adjustment
Every adjustment answers the question of how the comparable differs from the subject; if the answer is not at all, the line stays at zero.
How to use: Use this before computing any adjustment: first confirm the feature actually differs.
Exam Tip
Cost figures in a stem may be included for a feature both properties share. Compare the properties first, then decide whether any number is needed.
Common Mistakes to Avoid
- -Adjusting for a feature because its cost is known
- -Treating cost as value even when both properties have the item
- -Subtracting a shared feature's value from the comparable
Concept Deep Dive
Analysis
The question tests whether the candidate recognizes that a cost estimate matters only when the properties differ. A feature both properties share in the same form and condition needs no adjustment, so the cost figures are irrelevant facts.
Background Knowledge
The sales comparison approach adjusts comparables only for differences from the subject. Cost analysis is one way to measure a difference, but it is applied after the appraiser identifies that a difference exists.
Real-World Application
In a tract where every home was built with the same detached garage, an appraiser notes the garage on each comparable and enters no garage adjustment, even though the client's file includes a cost estimate for it.
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
An owner lives in the subject, a single-family home with a two-car garage; Comparable 1 has a one-car garage. No paired sales isolate the difference, but about a third of the neighborhood's homes are rented, and leases show two-car homes rent for $90 more per month. The lender's reviewer questions a rent-based garage adjustment because the subject is not rented. Which response is best?
Next Question
Two sales in the same subdivision are identical except that one has a swimming pool. They sold in the same month for $362,000 (with pool) and $347,000 (without). What does this pair indicate for the pool?