A comparable has 800 square feet more finished basement than the subject. Supported marginal rates are $32 per square foot for this basement difference and $68 for above-grade GLA. What signed basement adjustment applies to the comparable?
Correct Answer
C) −$25,600
−800 × 32 = −25600; the supplied above-grade rate does not apply to this basement difference. Common errors: making no adjustment because basement area is not GLA gives $0; applying the above-grade GLA rate to the basement gives −$54,400; adding both rates together gives −$80,000.
Why This Is the Correct Answer
Option C is correct because the comparable is superior by 800 square feet of finished basement, so its price is adjusted down. The supported basement rate is $32 per square foot: −800 × 32 = −$25,600. The $68 above-grade GLA rate does not apply to basement area.
Why the Other Options Are Wrong
Option A: −$80,000
Option A, −$80,000, comes from adding both rates together: −800 × ($32 + $68) = −$80,000. Only the basement rate applies, so the correct adjustment is −800 × 32 = −$25,600.
Option B: −$54,400
Option B, −$54,400, comes from applying the above-grade GLA rate to the basement: −800 × 68 = −$54,400. Basement area has its own supported rate, giving −800 × 32 = −$25,600.
Option D: $0
Option D, $0, makes no adjustment because basement area is not counted in GLA. Finished basement area is excluded from GLA but still contributes value, and the market supports $32 per square foot: −800 × 32 = −$25,600.
Comp better, price down
If the comparable has more of a feature than the subject, subtract its contribution from the comparable's price.
How to use: Use this to set the sign of any adjustment before doing the multiplication.
Exam Tip
When a question supplies two rates, check which one matches the difference being adjusted. The unused rate is often there to tempt you.
Common Mistakes to Avoid
- -Using the above-grade GLA rate for basement area
- -Skipping a basement adjustment because basement area is not GLA
- -Combining two different rates for one difference
Concept Deep Dive
Analysis
This question tests choosing the right rate and the right sign for a basement adjustment. The comparable has 800 more square feet of finished basement, so it is superior and is adjusted downward. Only the basement rate of $32 applies: −800 × $32 = −$25,600.
Background Knowledge
Adjustments are made to the comparable, not the subject. A superior comparable is adjusted downward and an inferior comparable is adjusted upward. Finished below-grade area is usually valued at a different marginal rate than above-grade living area, so each needs its own supported rate.
Real-World Application
A comparable has a fully finished 800-square-foot basement while the subject's basement is unfinished. The appraiser's market analysis supports $32 per square foot for finished basement area, separate from the $68 above-grade rate. The appraiser enters −$25,600 for the basement line on the grid.
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