Why are lump-sum dollar adjustments generally preferred to percentage adjustments in the sales grid?
Correct Answer
D) Because most are derived in dollars, and order then does not matter
Adjustments should be applied the way they were derived, and most are derived as dollar amounts (market conditions and perhaps location are exceptions). The sequence also does not matter for dollar adjustments, which is not always true for percentages.
Why This Is the Correct Answer
Option D is correct because most adjustments are derived in dollar terms, with market conditions and perhaps location as exceptions, and adjustments should be applied the way they were derived. In addition, the sequence of dollar adjustments does not affect the result, which is not always the case for percentage adjustments.
Why the Other Options Are Wrong
Option A: Because percentages are prohibited in residential appraisals
Option A says percentages are prohibited in residential appraisals. Percentage adjustments are not prohibited; market conditions adjustments, for example, are commonly stated as percentages.
Option B: Because dollar adjustments do not need any market support
Option B says dollar adjustments do not need any market support. Adjustments need market support whether it is stated in dollars or as a percentage.
Option C: Because percentage adjustments produce larger values in each case
Option C says percentage adjustments produce larger values in each case. Whether a percentage gives a larger or smaller figure depends on the rate and the base price; it is not a reason to prefer dollar adjustments.
Dollars add in any order
Dollar adjustments simply add up, so order does not matter; percentages multiply, so order can matter.
How to use: Use this when asked why dollar adjustments are preferred or whether adjustment sequence matters.
Exam Tip
Look for the answer that links the form of the adjustment to how it was derived.
Common Mistakes to Avoid
- -Believing percentage adjustments are prohibited
- -Assuming dollar adjustments need no support
- -Ignoring that the order of percentage adjustments can matter
Concept Deep Dive
Analysis
This question tests why dollar adjustments are generally preferred. Adjustments should be applied the way they were derived, and most are derived as dollar amounts. Dollar adjustments also give the same result whatever their order, which is not always true of percentages.
Background Knowledge
Adjustments are applied in the form in which they were derived. Because most are measured as dollar contributions, dollar adjustments are generally preferred. When percentage adjustments are used, their order can change the result because each applies to a different base.
Real-World Application
An appraiser measures garage and bathroom contributions in dollars from paired sales and enters them as dollar amounts. A market conditions adjustment derived as a monthly percentage is applied as a percentage.
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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A lender has ordered an appraisal of a two-bedroom condominium unit on the 6th floor of a mid-rise building, with a partial lake view and south exposure. Four units with the same floor plan in the same building sold in the last four months: Unit 302 (3rd floor, no lake view, south exposure) for $455,000; Unit 609 (6th floor, partial lake view, north exposure) for $461,000; Unit 704 (7th floor, partial lake view, south exposure) for $472,000; and Unit 1103 (11th floor, full lake view, south exposure) for $498,000. Buyers in the building pay more for higher floors, better lake views, and south exposure. Which two sales most narrowly bracket the subject?