Under Fannie Mae's Selling Guide, an appraiser reviews 20 recent one-unit sales in the subject's neighborhood: 2 at $285,000, 8 at $310,000, 6 at $345,000, 3 at $380,000 and 1 isolated sale at $900,000. What predominant price should be reported?
Correct Answer
B) $310,000
Fannie Mae defines the predominant price as the price most common or most frequently found in the neighborhood, so the figure is $310,000, which appears in 8 of the 20 sales. $327,500 is the median, the average of the 10th and 11th ordered sales ($310,000 and $345,000), and $358,000 is the mean including the isolated $900,000 sale, which should be excluded from the range anyway. $285,000 is the low end of the prevailing range, not the most common price.
Why This Is the Correct Answer
Option B is correct because the predominant price is the price most common or most frequently found in the neighborhood. $310,000 occurs 8 times out of 20 sales, more than any other price, so it is reported as a single whole-number figure.
Why the Other Options Are Wrong
Option A: $285,000
Option A, $285,000, is the lowest prevailing price, which marks the low end of the price range; it occurs only twice and is not the most frequent price.
Option C: $327,500
Option C, $327,500, is the median: the 10th and 11th ordered sales are $310,000 and $345,000, and ($310,000 + $345,000) / 2 = $327,500. The predominant price is the most frequent price, $310,000, not the middle value.
Option D: $358,000
Option D, $358,000, is the mean including the isolated sale: (2 x 285,000 + 8 x 310,000 + 6 x 345,000 + 3 x 380,000 + 900,000) / 20 = 7,160,000 / 20 = $358,000. It uses an average and includes an extreme that should be excluded, while the correct figure is the most frequent price of $310,000.
Predominant means most frequent
Predominant price is the price you see most often, like the most popular size on a store shelf.
How to use: Use this when a question gives a list of neighborhood prices and asks for the predominant price.
Exam Tip
Count how often each price appears before doing any averaging; the predominant price is the one that occurs most.
Common Mistakes to Avoid
- -Reporting the mean or median as the predominant price
- -Letting an isolated high sale pull the figure upward
- -Using the low end of the range as the predominant price
Concept Deep Dive
Analysis
The question tests the meaning of predominant price in Fannie Mae's neighborhood section. It requires choosing the most frequent price rather than an average or median, and recognizing that the isolated $900,000 sale is an extreme to set aside.
Background Knowledge
Fannie Mae asks for a price range reflecting high and low prevailing prices, with isolated extremes excluded, and a predominant price stated as one whole number. The predominant price is the most common price in the neighborhood, which is a mode-type measure, not a mean or median.
Real-World Application
In a subdivision where most homes trade near $310,000 and one custom estate sold for $900,000, the appraiser reports a prevailing range without the estate sale and lists $310,000 as the predominant price.
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