Why should the appraiser look for comparables whose economic characteristics, such as lease terms, match the subject’s?
Correct Answer
A) Because those adjustments are hard to isolate and measure
Adjustments for economic characteristics are frequently difficult to isolate and measure, so the appraiser should, whenever possible, choose comparables with economic characteristics similar to the subject’s.
Why This Is the Correct Answer
Option A is correct because adjustments for economic characteristics are frequently difficult to isolate and measure. A paired sales analysis would require two sales differing only in that economic characteristic, which is a demanding data requirement. Selecting comparables with similar economic characteristics avoids the need for this type of adjustment.
Why the Other Options Are Wrong
Option B: Because USPAP prohibits adjustments for economic traits
Option B claims USPAP prohibits adjustments for economic traits. USPAP contains no such prohibition; the issue is the practical difficulty of measuring the adjustment.
Option C: Because economic traits do not affect sale prices
Option C claims economic traits do not affect sale prices. Lease terms, expenses and similar economic characteristics can affect what buyers pay, which is why comparability on them matters.
Option D: Because lenders require identical lease terms
Option D claims lenders require identical lease terms. The reason to seek similar economic characteristics is measurement difficulty, not a general lender requirement for identical leases.
Hard to measure, so match
When an adjustment is hard to measure, avoid it by choosing comparables that already match.
How to use: Use this when a question asks why similar lease terms or other economic traits matter in comparable selection.
Exam Tip
Look for the answer about measurement difficulty; options claiming prohibitions or no price effect usually overstate the rule.
Common Mistakes to Avoid
- -Believing economic characteristics do not affect price
- -Thinking USPAP bans adjustments for lease terms
- -Ignoring lease differences when selecting income property comparables
Concept Deep Dive
Analysis
This question tests why appraisers prefer comparables with similar economic characteristics, such as lease terms. These differences can affect price but are hard to measure with sales data. Choosing similar comparables avoids the need for difficult adjustments.
Background Knowledge
Economic characteristics include items such as lease terms, operating expenses, tenant mix and management that affect income-producing property. They are an element of comparison in the sales comparison approach. Because they are hard to isolate, appraisers try to choose comparables that already match the subject on these points.
Real-World Application
An appraiser valuing a single-family house leased long term at above-market rent searches for comparables with similar lease terms. Without them, she would need to measure the leased fee effect, which few sales would support.
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?
People Also Study
Real Estate Market
13.6% of exam
Property Description
11.8% of exam
Land or Site Valuation
4.5% of exam
Cost Approach
13.6% of exam
Income Approach
8.2% of exam
Previous Question
A verified pair of cash-equivalent sales in the same market has C2 at $640,000 and C5 at $568,000. Rights, terms, time and other material characteristics are matched. A suitable comparable sold for $615,000. The subject is C5; the comparable is C2. Assume the observed contribution applies and no other adjustments. What signed condition adjustment and adjusted comparable price result?
Next Question
Under Fannie Mae’s comparable-selection guidance, how should comparable sales relate to the subject property?