A comparable property sold for $350,000 but is 200 square feet larger than the subject property. If the adjustment is $75 per square foot, what is the adjusted sale price?
Correct Answer
B) $335,000
Why this is correct: When a comparable is superior (larger) to the subject, its sale price must be adjusted downward to make it equivalent. The adjustment is 200 sq ft * 75 dollars/sq ft = 15,000 dollars. Subtract this from the sale price: 350,000 dollars - 15,000 dollars = 335,000 dollars. Why the other choices are wrong: 365,000 dollars incorrectly adds the adjustment. 275,000 dollars subtracts 75,000 dollars, a miscalculation. 350,000 dollars applies no adjustment. Exam tip: For size adjustments: If the comp is better (larger, newer, etc.), subtract. If the comp is worse, add.
Why This Is the Correct Answer
Option A ($335,000) is correct because it properly applies a downward adjustment to account for the comparable being larger than the subject. Since the comparable has 200 more square feet than the subject, and each square foot is valued at $75, the total adjustment is 200 × $75 = $15,000. This $15,000 must be subtracted from the comparable's sale price of $350,000 because the comparable is superior to the subject in size. The calculation yields $350,000 - $15,000 = $335,000, which represents what the comparable would have sold for if it were the same size as the subject property.
Why the Other Options Are Wrong
Option A: $365,000
Option A ($365,000) is incorrect because it applies an upward adjustment when a downward adjustment is needed. This answer results from adding the $15,000 adjustment ($350,000 + $15,000 = $365,000) instead of subtracting it. This error occurs when appraisers forget that superior comparable features require downward adjustments to reflect what the comparable would have sold for without those superior features.
Option C: $275,000
Option C ($275,000) is incorrect because it represents an extreme overcorrection that doesn't follow any logical adjustment methodology. This figure cannot be derived from the given data using proper adjustment techniques and likely results from calculation errors or misunderstanding the adjustment process entirely.
Option D: $350,000
Option D ($350,000) is incorrect because it makes no adjustment at all, leaving the comparable's sale price unchanged. This represents a failure to recognize that the 200 square foot difference between the comparable and subject requires an adjustment. Ignoring necessary adjustments leads to inaccurate value estimates and violates the fundamental principle that comparables must be adjusted to reflect the subject property's characteristics.
SLIM Adjustment Rule
SLIM: Superior comparables require Lower (downward) adjustments, Inferior comparables require More (upward) adjustments. Remember 'If the comp is BETTER, make the price LESS; if the comp is WORSE, make the price MORE.'
How to use: When you see an adjustment question, first identify whether the comparable is superior or inferior to the subject in the given characteristic. If superior (like being larger), apply SLIM and make a downward adjustment by subtracting. If inferior, add the adjustment amount to increase the comparable's adjusted price.
Exam Tip
Always double-check the direction of your adjustment by asking: 'Is this comparable better or worse than the subject?' Write a plus or minus sign next to your calculation before computing to avoid directional errors.
Common Mistakes to Avoid
- -Applying upward adjustments when downward adjustments are needed (confusing adjustment direction)
- -Forgetting to make any adjustment when differences exist between comparable and subject
- -Using incorrect mathematical operations or calculation errors in the adjustment formula
Concept Deep Dive
Analysis
This question tests the fundamental concept of adjustments in the sales comparison approach, specifically how to handle size differences between comparable properties and the subject property. The key principle is that adjustments must be made to the comparable property's sale price to reflect what it would have sold for if it had the same characteristics as the subject property. When a comparable is superior to the subject (larger in this case), a downward adjustment is required because the comparable's sale price reflects additional value that the subject property doesn't possess. The adjustment process involves multiplying the difference in square footage by the per-square-foot adjustment factor and then subtracting this amount from the comparable's sale price.
Background Knowledge
The sales comparison approach requires adjustments to comparable sales to account for differences between the comparables and the subject property. When a comparable is superior to the subject (larger, better condition, more amenities), a downward adjustment is made to the comparable's sale price. Conversely, when a comparable is inferior to the subject, an upward adjustment is applied to reflect what the comparable would have sold for if it had the subject's superior characteristics.
Real-World Application
In practice, appraisers regularly encounter size differences when selecting comparables, as finding exact matches is rare. They must adjust for square footage differences using market-derived adjustment factors, often obtained from paired sales analysis or regression analysis of recent sales data to determine how much buyers pay per square foot for additional space.
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