Why does Fannie Mae consider sales from within the subject’s neighborhood the best indicator of value?
Correct Answer
A) They reflect the same location characteristics as the subject
Sales from the same location should reflect the same positive and negative location characteristics. Fannie Mae still permits sales from competing neighborhoods when appropriate, and in-neighborhood sales can still need adjustments.
Why This Is the Correct Answer
Option A is correct because Fannie Mae states that sales from within the neighborhood are the best indicator of value since sales prices of comparables from the same location should reflect the same positive and negative location characteristics. Shared location means the market has already priced the same neighborhood influences into those sales. That reduces the need to account for location differences between the subject and the comparables.
Why the Other Options Are Wrong
Option B: They are usually the most recent sales available in the area
Option B claims in-neighborhood sales are preferred because they are usually the most recent sales available. Recency is a separate selection factor; the Guide's stated reason for preferring neighborhood sales is their shared location characteristics, not their sale dates.
Option C: They require no adjustments in the sales comparison grid
Option C claims in-neighborhood sales require no adjustments in the sales comparison grid. Sales from the same neighborhood can still differ from the subject in size, condition, features and market conditions, so they can still need adjustments.
Option D: Lenders prohibit using sales from other neighborhoods
Option D claims lenders prohibit using sales from other neighborhoods. Fannie Mae permits sales from competing neighborhoods when appropriate, so there is no such prohibition.
Same Place, Same Influences
Think of a neighborhood as a shared weather system: the houses under it share the same sunshine and storms. Sales from under that same sky already reflect the location conditions the subject faces.
How to use: Use this image when a question asks why same-neighborhood comparables are favored.
Exam Tip
When a question asks why neighborhood sales are the best indicator, choose the answer tied to shared location characteristics. Answers that claim no adjustments are needed or that other neighborhoods are banned overstate the guidance.
Common Mistakes to Avoid
- -Assuming same-neighborhood comparables need no adjustments
- -Believing sales from competing neighborhoods can never be used
- -Choosing comparables by recency alone and ignoring location
Concept Deep Dive
Analysis
This question tests why Fannie Mae prefers comparable sales from the subject's own neighborhood. The reasoning centers on location: sales from the same location should already reflect the same positive and negative location influences as the subject. Look for the answer that names that shared location effect rather than recency, a lack of adjustments or a lender ban.
Background Knowledge
Location is one of the most significant influences on residential value, and it cannot be changed by the owner. Comparable sales from the same neighborhood are exposed to the same schools, amenities, nuisances and market appeal as the subject. When adequate neighborhood sales are not available, appraisers may look to competing neighborhoods and adjust for location differences.
Real-World Application
An appraiser values a home in an established subdivision near a well-regarded park. She first selects closed sales from the same subdivision because buyers there paid prices that reflect the same park access and street pattern. She still adjusts those sales for differences in square footage and condition.
More Market Questions
In market area analysis, what characteristic distinguishes a district from a neighborhood?
Under USPAP Standards Rule 1-3(a), which item must an appraiser identify and analyze when necessary for credible results in a market value assignment?
How does the Fannie Mae Selling Guide define a neighborhood?
Several homes in a neighborhood are vacant and boarded up. Which market force does Fannie Mae classify this as?
Infrastructure investment such as a new interchange typically affects nearby land by:
A city raises property tax rates and tightens building regulations. Which market force does Fannie Mae classify these as?
An appraiser believes, without market evidence, that a nearby group home lowers values. What does Fannie Mae require?
Which three categories are used to report the supply of properties in a Fannie Mae neighborhood section?
An appraiser is asked for a retrospective value opinion as of three years ago. When must the appraiser meet the Competency Rule?
Can mixed land uses in a residential neighborhood ever enhance home values, according to Fannie Mae?
People Also Study
Property Description
11.8% of exam
Land or Site Valuation
4.5% of exam
Sales Comparison Approach
16.4% of exam
Cost Approach
13.6% of exam
Income Approach
8.2% of exam