Unlike the subject duplex, a comparable duplex has a second-floor half bath. The seller's records show the half bath cost $22,000 to add in 2016. A contractor's current estimate to build the same half bath is $15,000, which includes $800 in permit fees, and the appraiser estimates 20% depreciation. Market data show buyers in this area pay about the depreciated cost of an added bath. What adjustment applies to the comparable?
Correct Answer
B) -$12,000
The cost basis is today's cost to build the half bath, $15,000, which properly includes permit fees as a direct cost; after 20% depreciation it is $15,000 x 0.80 = $12,000. The comparable has the bath, so it is superior and the adjustment is -$12,000. The seller's $22,000 outlay in 2016 is a historical cost and does not show today's cost or contribution, stripping out the permit fees gives -$11,360, and -$3,000 is the depreciation rather than the depreciated cost.
Why This Is the Correct Answer
Option B is correct because the current cost to build the half bath is $15,000, permit fees included, and 20% depreciation leaves $15,000 x 0.80 = $12,000. The comparable has the bath the subject lacks, so its price is adjusted down by $12,000.
Why the Other Options Are Wrong
Option A: -$22,000
Option A, -$22,000, uses what the seller spent in 2016. That historical cost reflects a past project and is not today's depreciated cost; the supported figure is $15,000 x 0.80 = $12,000.
Option C: -$11,360
Option C, -$11,360, removes the $800 permit fees before depreciating: ($15,000 - $800) x 0.80. Permit fees are a direct cost of building the bath and belong in the $15,000, so the adjustment is -$12,000.
Option D: -$3,000
Option D, -$3,000, is the 20% depreciation, $15,000 x 0.20, not the value that remains. The bath's contribution is its current cost less that depreciation: $15,000 - $3,000 = $12,000.
Today's cost, not the seller's
Cost analysis prices the feature as of the effective date; the seller's receipt is history, and a current estimate already carries its own permits.
How to use: Use this when a question gives both an owner's past cost and a current cost estimate.
Exam Tip
Expect a seller's or owner's original cost to appear as a distractor. Take the current estimate as given, depreciate it, and then set the sign.
Common Mistakes to Avoid
- -Using the seller's original cost as the adjustment
- -Leaving permit fees out of the cost of an addition
- -Reporting the depreciation instead of the depreciated cost
Concept Deep Dive
Analysis
The question tests choosing the right cost figure. A seller's past spending is a historical cost and says nothing reliable about current cost or value, while a current estimate already contains its permit fees. The candidate must depreciate the current estimate and apply a negative sign because the comparable has the feature.
Background Knowledge
Cost analysis uses current cost new less depreciation, cost to cure or similar indicators, not what a past owner paid. Direct costs include items such as building permit fees that relate to the physical construction. A comparable that has a feature the subject lacks receives a negative adjustment.
Real-World Application
A duplex seller tells the appraiser the upstairs half bath cost a great deal to add years ago. The appraiser instead obtains a current contractor estimate, depreciates it for age, and checks that local sales show buyers pay about that amount.
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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