A comparable property sold for $380,000 and is 5% superior to the subject property in overall condition. What adjustment should be made to the comparable?
Correct Answer
A) Subtract $19,000
Why this is correct: When a comparable is superior to the subject, its sale price must be adjusted downward to reflect the subject's lower quality. The adjustment is calculated as a percentage of the comparable's sale price: 5% of $380,000 = $19,000, which is subtracted. Why the other choices are wrong: 'Add $19,000' would incorrectly increase the comparable's value. 'Add $18,050' uses an incorrect calculation and direction. 'Subtract $18,050' is an incorrect dollar amount from a misapplied percentage. Exam tip: For percentage adjustments, always apply the percentage to the comparable's sale price, not the subject's value, and adjust away from the difference.
Why This Is the Correct Answer
Option A is correct because when a comparable property is superior to the subject property, we must make a downward adjustment to the comparable's sale price. Since the comparable is 5% superior in overall condition, we calculate 5% of $380,000 = $19,000 and subtract this amount from the comparable's sale price. This adjustment removes the premium value associated with the superior condition, making the comparable more equivalent to the subject property for valuation purposes.
Why the Other Options Are Wrong
Option B: Add $18,050
Option B is wrong because adding $19,000 would be the incorrect direction of adjustment. Adding money to a comparable that is already superior to the subject would make the comparable even more valuable relative to the subject, which defeats the purpose of the adjustment process.
Option C: Subtract $18,050
Option C uses the wrong calculation method. While it correctly identifies that a subtraction is needed, $18,050 appears to be calculated incorrectly, possibly by taking 5% of the adjusted price rather than 5% of the original sale price of $380,000.
Option D: Add $19,000
Option D is wrong for two reasons: it uses the incorrect direction (adding instead of subtracting) and appears to use an incorrect calculation that doesn't equal 5% of $380,000.
COMPASS Rule
COMPASS: Comparable Over subject = Minus; Comparable Under subject = Plus. When the comparable is better (over/superior), subtract. When the comparable is worse (under/inferior), add.
How to use: When you see an adjustment question, first identify whether the comparable is superior or inferior to the subject, then apply COMPASS: if comparable is Over (superior), subtract; if comparable is Under (inferior), add.
Exam Tip
Always read carefully to identify which property (comparable or subject) has the superior feature, then remember that adjustments always go in the direction that makes the comparable more like the subject.
Common Mistakes to Avoid
- -Confusing the direction of adjustment (adding when should subtract)
- -Making adjustments to the subject property instead of the comparable
- -Calculating the percentage of the wrong base amount
Concept Deep Dive
Analysis
This question tests the fundamental principle of adjustments in the sales comparison approach to real estate appraisal. When using comparable sales, appraisers must adjust for differences between the comparable properties and the subject property to arrive at an accurate value estimate. The key concept is that adjustments are always made TO the comparable property to make it more like the subject property. If a comparable is superior to the subject in any aspect, its value must be adjusted downward to reflect what it would have sold for if it had the same characteristics as the subject property.
Background Knowledge
The sales comparison approach requires adjustments to comparable properties to account for differences between them and the subject property. All adjustments are made TO the comparable properties, not to the subject property, with the goal of estimating what each comparable would have sold for if it were identical to the subject.
Real-World Application
In practice, appraisers regularly encounter situations where comparable properties have better or worse conditions, newer appliances, different lot sizes, or other varying features. Each difference requires a calculated adjustment to ensure the final value estimate accurately reflects what the subject property should sell for in the current market.
More Sales Comparison Questions
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