An appraiser is using a builder's pricing as evidence for new construction comparables. What caution applies?
Correct Answer
C) A base quote may omit upgrades or fail to reflect incentives and final transaction terms.
Verify the actual consideration, included features, upgrades, concessions and relevant terms rather than equate a headline base quote with the completed transaction. Then analyze the market effect of any material difference. An incentive is not automatically a dollar-for-dollar value adjustment, and neither builder origin nor new construction alone makes otherwise relevant evidence unusable.
Why This Is the Correct Answer
Option C is correct because a builder's base quote may omit upgrades or fail to reflect incentives and final transaction terms. The appraiser should verify the actual consideration, included features, upgrades, concessions and terms. Adjustments for concessions should reflect the market's reaction, which is not automatically a dollar-for-dollar amount.
Why the Other Options Are Wrong
Option A: Builder prices are below the market value of the homes.
Option A is wrong because builder prices are not inherently below the market value of the homes. The concern is that a base quote may not match the actual transaction, which could be higher or lower once upgrades and incentives are considered.
Option B: New construction cannot be considered comparable evidence.
Option B is wrong because new construction can be considered comparable evidence. Neither builder origin nor new construction alone makes otherwise relevant evidence unusable.
Option D: Publicly available builder information is confidential and cannot be cited in the report.
Option D is wrong because publicly available builder information is not confidential simply because a builder published it, and it may be cited when relevant. The real issue is verifying that the information reflects the actual transaction.
Base price is not sale price
A builder's base quote leaves out upgrades and incentives. Verify what was actually paid and received.
How to use: Use this when a question asks about relying on builder pricing for new construction comparables.
Exam Tip
Look for the answer about verifying upgrades, incentives and final terms. Reject answers that ban new construction evidence or claim builder data cannot be used.
Common Mistakes to Avoid
- -Using an advertised base price as the sale price
- -Treating every builder incentive as a dollar-for-dollar adjustment
- -Refusing to use new construction sales as comparables
Concept Deep Dive
Analysis
This question tests caution with builder pricing. A base price quote may omit upgrades and lot premiums or fail to reflect incentives and final terms. The appraiser should verify the actual consideration and features and then analyze the market effect of any material differences.
Background Knowledge
New-home sales often involve upgrades, lot premiums, closing-cost credits or other incentives that make the base price different from the actual consideration. Fannie Mae guidance calls for concession adjustments that approximate the market's reaction to the concessions.
Real-World Application
A builder's website lists a model at a base price, but the closed sale included a premium lot, upgraded flooring and a closing-cost credit. The appraiser verifies these items with the builder's sales office and analyzes how the market reacts to them.
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