Selecting and Adjusting Comparable Sales With a Concession and an REO
The subject is a 1,650-square-foot, three-bedroom/two-bath ranch built in 1998 with a two-car garage, 6,000-square-foot lot, average condition, and no pool. The overall market has been stable, but the subject's entry-level segment has increased about 3% per year. You have these sales: (1) 1,700 sq ft, three/two, built 2000, pool, sold two months ago for $390,000; seller paid $12,000 of buyer closing costs; DOM 8. (2) 1,600 sq ft, three/two, built 1995, no pool, sold one month ago for $360,000; REO, sold as-is with no inspections; buyer spent $8,000 on permitted repairs after closing; DOM 12. (3) 1,650 sq ft, same model as subject, no pool, sold ten months ago for $372,000. (4) 1,580 sq ft, three/two, no pool, sold four months ago for $355,000; sale was from mother to son, listed privately, no MLS; DOM 0. The subject has a $5,000 foundation crack that needs repair. Your market data support $15,000 for a pool and $90 per square foot for size differences.
1. Which sales are most reliable, and what adjustments would you make? Show your adjusted indications.
Read the worked answer
Sale 4 is a non-arm's-length family transfer with no MLS exposure; exclude it or give it no weight. Sale 1: $390,000 − $12,000 seller concession = $378,000 cash-equivalent; subtract $15,000 for the pool because the subject lacks one; subtract $4,500 for size because the comparable is 50 sq ft larger at $90/sq ft; subtract $5,000 because the subject has the foundation crack and the comparable is average. Indication: $353,500. Sale 2: $360,000 + $8,000 for the buyer's post-closing repairs to put it in average condition; add $4,500 because the subject is 50 sq ft larger; subtract $5,000 for the foundation. Indication: $367,500. Sale 3: model match; apply a time adjustment of about 3% per year for 10 months, or 2.5%: $372,000 × 1.025 = $381,300; subtract $5,000 for the foundation. Indication: $376,300. The adjusted range is roughly $354,000–$376,000. Sale 1 is the most recent and similar in size, but it has a pool and a concession; Sale 2 is an REO but can be used with condition and distress verification; Sale 3 is a model match but older and requires a time adjustment.
2. Explain why Sale 4 should not be used and how Sale 2's REO status should be handled.
Read the worked answer
Sale 4 is a private sale from mother to son with no MLS exposure and no evidence of arm's-length negotiation; it does not reflect typical market motivation, marketing, or buyer pool. It may be useful only as background if verified, but it should not be a primary comparable. Sale 2 is an REO sold as-is with no inspections. That does not automatically make it unusable, but you must verify the sale terms, the buyer's repair costs, the marketing exposure, and whether the price reflects distress or simply as-is condition. The $8,000 repair cost is an adjustment to make the comparable equivalent to average condition. If REO sales dominate the market, they may set market value; here only one REO is present, so give it secondary weight and avoid an unsupported 'distress' adjustment.
3. Reconcile a final value range and explain the weight you give each indication.
Read the worked answer
Reconciliation is not averaging. Give the most weight to Sale 1 for recency and similar size, but recognize that its pool adjustment and concession are well supported. Give Sale 2 secondary weight because it is recent and adjusted for repairs, but it is an REO and may reflect as-is marketing. Give Sale 3 weight for the model match, but discount it for age and the time adjustment. The indicated range is about $354,000–$376,000. A supported final opinion is around $365,000–$370,000, with the foundation repair already reflected. If the foundation repair bids exceed $5,000 or the market penalizes the defect more heavily, the lower end of the range is more credible. State that Sale 4 was excluded and why.