Under Fannie Mae's Selling Guide, a comparable sold for $400,000. The seller paid $8,000 of the buyer's closing costs, and market analysis shows the price rose by that amount. Other market-supported adjustments are time +$12,000, GLA +$28,000, condition -$4,000 and garage +$12,000. What is the net adjustment percentage, measured against the sale price?
Correct Answer
C) 10.0%
The concession raised the price, so it requires a negative $8,000 adjustment; positive concession adjustments are not acceptable. Net = -$8,000 + $12,000 + $28,000 - $4,000 + $12,000 = $40,000, and $40,000 / $400,000 = 10.0%. The 14.0% figure enters the concession as +$8,000, 9.1% divides by the $440,000 adjusted price, and 7.0% leaves out the time adjustment.
Why This Is the Correct Answer
Option C is correct because the concession inflated the price and takes a -$8,000 adjustment, giving a net of -$8,000 + $12,000 + $28,000 - $4,000 + $12,000 = $40,000. Divided by the $400,000 sale price, the net adjustment is 10.0%.
Why the Other Options Are Wrong
Option A: 7.0%
Option A, 7.0%, leaves out the +$12,000 time adjustment: $28,000 / $400,000. A supported market conditions adjustment is part of the net; including it gives $40,000, or 10.0%.
Option B: 9.1%
Option B, 9.1%, divides the correct $40,000 net by the $440,000 adjusted price. Adjustment percentages are measured against the sale price, so the answer is $40,000 / $400,000 = 10.0%.
Option D: 14.0%
Option D, 14.0%, treats the concession as +$8,000, giving $56,000 / $400,000. The concession increased the price, and Fannie Mae does not accept positive concession adjustments, so it must be -$8,000, for a 10.0% net.
Concessions come off
A concession that inflated the price is taken off the comparable. Then add every adjustment with its sign and divide by the sale price.
How to use: Use this whenever a net adjustment question includes seller-paid costs.
Exam Tip
Settle the direction of the concession adjustment before doing any arithmetic.
Common Mistakes to Avoid
- -Adding a concession adjustment instead of deducting it
- -Using the adjusted price as the base for the percentage
- -Leaving the time adjustment out of the net total
Concept Deep Dive
Analysis
The candidate must first decide the sign of the concession adjustment, then sum all adjustments algebraically and divide by the sale price. Each distractor comes from a single slip in one of those steps.
Background Knowledge
Seller-paid concessions can push a sale price above what the real estate alone would bring. Fannie Mae requires a negative adjustment equal to the price increase the market attributes to the concession, and does not accept positive concession adjustments.
Real-World Application
In a market where builders pay buyers' closing costs, an appraiser finds the concessions raised prices by their full amount. The appraiser deducts the concession on each affected comparable and computes net and gross adjustments from the sale prices.
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