A comparable property of 20,000 sf sold for a cash-equivalent price of $2,400,000. The subject contains 18,000 sf. The two properties match in property rights, market and method of measuring area, and market data show that the comparable's overall price per square foot applies to the subject. What value does this indicate for the subject?
Correct Answer
B) $2,160,000
2400000÷20000×18000=2160000. Common errors: using the comparable price without adjusting for size gives $2,400,000; inverting the size ratio gives $2,666,667; misplacing the decimal in the subject area gives $216,000.
Why This Is the Correct Answer
Option B is correct because the comparable's unit price is $2,400,000 ÷ 20,000 sf = $120 per sf. Applying the unit price to the 18,000 sf subject gives $120 × 18,000 = $2,160,000. This states the sale in a unit of comparison and applies it to the subject.
Why the Other Options Are Wrong
Option A: $216,000
Option A, $216,000, results from misplacing the decimal in the subject area: $120 × 1,800 = $216,000. The subject has 18,000 sf, so the indication is $120 × 18,000 = $2,160,000.
Option C: $2,400,000
Option C, $2,400,000, uses the comparable's price without accounting for the size difference. Applying the $120 per sf unit price to the 18,000 sf subject gives $2,160,000.
Option D: $2,666,667
Option D, $2,666,667, inverts the size ratio: $2,400,000 ÷ 18,000 × 20,000 ≈ $2,666,667. The correct calculation divides by the comparable's 20,000 sf and multiplies by the subject's 18,000 sf.
Divide by comp, multiply by subject
Comp price divided by comp size gives the unit price; unit price times subject size gives the indication.
How to use: Use this order of operations for any price-per-unit application.
Exam Tip
Do a quick reasonableness check: a smaller subject at the same unit price should indicate less than the comparable's price.
Common Mistakes to Avoid
- -Inverting the size ratio
- -Using the comparable's total price without converting to a unit price
- -Dropping a zero in the subject's area
Concept Deep Dive
Analysis
This question tests applying a unit price from a comparable to the subject's size. Because market data show that the overall price per square foot applies to the subject, the appraiser converts the comparable's price to a unit price and multiplies by the subject's area. This is an overall rate, not a marginal size adjustment.
Background Knowledge
Units of comparison, such as price per square foot or per acre, let appraisers compare sales of different sizes. The appraiser computes each sale price in the unit and applies a market-supported unit value to the subject. In practice, an overall unit price may not equal the marginal value of extra area, which is why the question states that the overall rate applies.
Real-World Application
An appraiser values an 18,000 sf warehouse using a recent 20,000 sf sale in the same market. After confirming that buyers price such buildings by the square foot and that the overall rate applies, the appraiser converts the sale to a price per square foot and applies it to the subject.
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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Next Question
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?