Why are adjustments for economic characteristics often hard to measure with paired sales?
Correct Answer
D) Because each pair must differ in that characteristic alone
A paired sales analysis for an economic characteristic would require two sales differing only in that characteristic, a very rigorous data requirement. The appraiser should prefer comparables with similar economic characteristics.
Why This Is the Correct Answer
Option D is correct because a paired sales analysis would require two comparable sales that differ only in the economic characteristic whose value is being measured. That is a very rigorous data requirement and is hard to meet in practice. For this reason, the appraiser should prefer comparables with similar economic characteristics.
Why the Other Options Are Wrong
Option A: Because economic characteristics seldom affect sale prices
Option A says economic characteristics seldom affect sale prices. That is wrong because characteristics like lease terms and tenant quality can affect price; the difficulty is isolating their effect, not that they lack one.
Option B: Because they must be expressed as percentage adjustments
Option B says economic adjustments must be expressed as percentage adjustments. No such requirement exists, and the format of the adjustment is not what makes paired sales hard to find.
Option C: Because lenders prohibit any adjustment for tenant quality
Option C says lenders prohibit any adjustment for tenant quality. There is no such general prohibition; the challenge is the data needed to measure the effect.
One difference per pair
A clean pair is like a controlled experiment: only one variable can change.
How to use: Use this when asked why paired sales are hard to apply to a specific characteristic.
Exam Tip
When a question asks why paired sales are difficult, look for the answer about needing sales that differ in only the one characteristic being measured.
Common Mistakes to Avoid
- -Thinking economic characteristics have little effect on price
- -Believing a specific adjustment format is required
- -Assuming lenders bar adjustments for tenant quality
Concept Deep Dive
Analysis
This question tests the data demands of paired sales analysis for economic characteristics such as lease terms or tenant quality. A valid pair must isolate the one characteristic being measured. Reason through how rarely two sales differ only in an economic feature.
Background Knowledge
Economic characteristics include features that affect a property's income, such as rent levels, lease terms, expenses and tenant mix. Paired sales analysis isolates the value of one difference by comparing sales that are otherwise alike. When suitable pairs are scarce, selecting comparables with similar economic characteristics reduces the need for adjustment.
Real-World Application
An appraiser wants to measure how a long-term lease at above-market rent affects the price of a rented duplex. Finding two sales identical except for their lease terms proves nearly impossible, so the appraiser selects comparables with similar tenancy instead.
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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