Under the Interagency Appraisal and Evaluation Guidelines, an appraisal should include a discussion of market conditions. Beyond value trends, demand and supply factors, and exposure time, which other information might that discussion include?
Correct Answer
B) Concession effects, list-to-sale ratio and financing availability
The Interagency Guidelines say the market conditions discussion should include value trends, demand and supply factors, and exposure time, and other information might include the prevalence and effect of sales and financing concessions, the list-to-sale price ratio and availability of financing. Borrower credit data and the lender's loan pricing are underwriting matters, not market conditions, and the subject's historical construction cost is not market-conditions evidence.
Why This Is the Correct Answer
Option B is correct because the Interagency Guidelines list the prevalence and effect of sales and financing concessions, the list-to-sale price ratio and availability of financing as other information a market conditions discussion might include. Each measures how the market for the property is performing.
Why the Other Options Are Wrong
Option A: The borrower's credit score, income and debt-to-income ratio
Option A lists the borrower's credit score, income and debt-to-income ratio. Those are credit underwriting items for the lender, not evidence about the real estate market.
Option C: The loan's interest rate, term and the lender's pricing margin
Option C lists the loan's interest rate, term and the lender's pricing margin. Those describe one specific loan; general availability of financing is a market condition, but the terms of the subject loan are not.
Option D: The subject's original construction cost and the builder's profit
Option D lists the subject's original construction cost and the builder's profit. Historical cost is not a market condition, and it does not show current trends, demand or supply.
Market, not borrower
Market conditions describe how properties are selling: concessions, list-to-sale ratios and financing availability. Borrower and loan details belong to underwriting.
How to use: Use this to sort which items belong in an appraisal's market conditions discussion.
Exam Tip
When options mix market evidence with borrower or loan details, pick the option that describes the market for the property.
Common Mistakes to Avoid
- -Mixing borrower underwriting data into the market analysis
- -Leaving concessions out of the market conditions discussion
Concept Deep Dive
Analysis
This question tests what belongs in an appraisal's market conditions discussion under the Interagency Guidelines. The listed items all describe how the market is behaving: concessions, how close sale prices are to list prices, and whether financing is available. The distractors describe the borrower, the loan or the subject's history.
Background Knowledge
The Interagency Guidelines expect appraisals for federally related transactions to discuss market conditions, including value trends, demand and supply factors, and exposure time. Concessions, list-to-sale price ratios and financing availability help show whether a market is strengthening or softening. These items also tie into adjustments for concessions and market conditions in the sales comparison approach.
Real-World Application
In a softening market, an appraiser notes that seller credits have become common, sale prices are falling further below list prices, and lenders have tightened financing. She reports these points in the market conditions discussion to support her conclusion that values are leveling off.
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