Under Fannie Mae's Selling Guide, a comparable sold for $412,000, and the seller paid $9,000 of the buyer's closing costs. Concessions of this size are common in the segment. Paired sales show that such concessions raised sale prices in this market by about $6,000. What is the comparable's adjusted sale price for concessions?
Correct Answer
A) $406,000
Fannie Mae requires a negative adjustment equal to the increase in price attributable to the concession, so the market reaction of $6,000 is deducted: $412,000 - $6,000 = $406,000. The fact that such concessions are common in the segment does not remove the need to adjust, so leaving the price at $412,000 is wrong. Adding $6,000 or $9,000 moves the price in the wrong direction; positive concession adjustments are not acceptable.
Why This Is the Correct Answer
Option A is correct because the negative adjustment should equal the increase in the comparable's price attributable to the concession, which paired sales put at $6,000. Deducting it gives $412,000 - $6,000 = $406,000. How common such concessions are in the segment does not change the need for the adjustment.
Why the Other Options Are Wrong
Option B: $412,000
Option B, $412,000, leaves the sale unadjusted because concessions are common in the segment. Fannie Mae states that the need for and amount of a concession adjustment is not based on how typical the concessions are, so the $6,000 price effect must still be deducted to reach $406,000.
Option C: $418,000
Option C, $418,000, adds the $6,000 market reaction ($412,000 + $6,000) instead of subtracting it. The concession inflated the price, so the adjustment is negative: $412,000 - $6,000 = $406,000.
Option D: $421,000
Option D, $421,000, adds the seller's full $9,000 cost ($412,000 + $9,000). That is wrong twice: the adjustment runs downward, and it is measured by the market's $6,000 price reaction, giving $406,000.
Market reaction, minus only
Concession adjustments subtract what the market paid for the concession, not what the seller spent on it. Think: the price went up because of the credit, so take the bump back out.
How to use: Use this whenever a comparable shows seller-paid costs: find the market-supported price effect and deduct it.
Exam Tip
When a concession question gives both the seller's cost and a market-derived price effect, the Fannie Mae adjustment uses the price effect and is a deduction.
Common Mistakes to Avoid
- -Skipping the adjustment because concessions are typical in the segment
- -Deducting the seller's full cost when the market reaction was smaller
- -Adding the concession to the comparable's price
Concept Deep Dive
Analysis
This question tests how Fannie Mae measures a concession adjustment and which direction it runs. Two figures are offered: the seller's cost of $9,000 and the market's price reaction of $6,000. Fannie Mae ties the negative adjustment to the price increase the market attributes to the concession, so you deduct $6,000 from the $412,000 sale price.
Background Knowledge
Sales or financing concessions, such as seller-paid closing costs, can push a recorded price above what the real estate alone would bring. Fannie Mae requires the appraiser to adjust comparables for the market's reaction to the concession, which may be less than the seller's cost. A strict dollar-for-dollar deduction is acceptable only when analysis shows the market reaction equals the full concession.
Real-World Application
An appraiser in a new subdivision finds that builders pay buyers' closing costs on most sales. By pairing sales with and without credits, she finds the credits lift prices by less than their face amount and deducts that smaller supported amount from each comparable that had one.
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