Market evidence supports a 10% downward condition adjustment based on the comparable’s cash-equivalent $400,000 price. Apply only that supported difference. What adjusted price results?
Correct Answer
D) $360,000
400000 × (1 + -0.1) = 360000. The percentage base is explicitly the original comparable price; the percentage and its dollar amount are different quantities.
Why This Is the Correct Answer
Option D is correct because $400,000 × (1 − 0.10) = $360,000. The 10% downward adjustment equals $40,000, and subtracting it from the comparable's $400,000 cash-equivalent price gives the adjusted price. The adjustment is applied to the comparable, which is where sales comparison adjustments are made.
Why the Other Options Are Wrong
Option A: $400,000
Option A, $400,000, is the unadjusted cash-equivalent price. It ignores the supported 10% downward condition adjustment; the correct result is $400,000 × 0.90 = $360,000.
Option B: $440,000
Option B, $440,000, comes from adding 10% instead of subtracting it ($400,000 × 1.10). The market supports a downward adjustment, so the correct result is $400,000 × 0.90 = $360,000.
Option C: $40,000
Option C, $40,000, is only the dollar amount of the adjustment ($400,000 × 0.10), not the adjusted price. Subtracting that amount from $400,000 gives the correct $360,000.
Percent is a rate, not price
The percentage tells you the rate, the base times the rate gives the dollar adjustment, and the base plus or minus that amount gives the adjusted price. Three different numbers, three different meanings.
How to use: Use this whenever an answer choice equals the dollar adjustment itself rather than the adjusted price.
Exam Tip
Before calculating, identify the base and the direction (up or down). Answer choices often include the unadjusted price, the reversed direction and the bare adjustment amount.
Common Mistakes to Avoid
- -Adding the percentage when the adjustment is downward
- -Reporting the dollar adjustment amount as the adjusted price
- -Leaving the price unadjusted after identifying a supported difference
Concept Deep Dive
Analysis
This question tests whether you can apply a percentage adjustment to the correct base and in the correct direction. The base is the comparable's cash-equivalent price of $400,000, and the market supports a 10% downward condition adjustment. Multiply the base by (1 − 0.10) to get the adjusted price, keeping the percentage, its dollar amount and the final adjusted price distinct.
Background Knowledge
Adjustments in the sales comparison approach are made to the comparable's price to reflect how it differs from the subject. Adjustments can be stated as percentages or dollar amounts, and a percentage must be applied to a clearly identified base. A downward adjustment means the comparable is superior in that element, so its price is reduced.
Real-World Application
An appraiser finds through paired sales that, in the subject's market, the condition difference accounts for about 10% of a superior-condition home's price. A comparable in superior condition sold for $400,000 cash-equivalent, so the appraiser reduces it by $40,000 to $360,000 to reflect the subject's condition.
More Sales Comparison Questions
An undamaged but functionally inadequate system causes a supported $60,000 loss. Replacement costs $85,000 and restores only $60,000, with no other benefits. What loss classification and deduction fit?
The subject is a 10-year-old dwelling with improvement cost new of $640,000. A highly comparable 7-year-old dwelling recently sold for $580,000; at the sale date its site was worth $150,000 and its improvement cost new was $500,000. Market evidence shows depreciation accruing evenly with actual age. What is the depreciated value of the subject improvements?
Observed sale prices are $450,000, $475,000, $425,000, $500,000, $440,000. Calculate the range (maximum−minimum), to the nearest dollar.
Observed values are 100, 105, 110, 115, 120. Calculate the range (maximum−minimum).
For an arithmetic illustration only, depreciate a historical $2,000,000 construction cost on a zero-salvage straight-line 40-year schedule for 10 years. What unindexed scheduled amount remains? This is not a conclusion of current market value or current replacement cost.
For an arithmetic illustration, allocate historical construction cost $2,400,000 over 40 years on a zero-salvage equal annual schedule. After 8 years, what scheduled unindexed amount remains? This is not a current market-value conclusion.
For an arithmetic schedule only, allocate historical cost $2,500,000 over 40 years with zero residual. After 8 years, what unindexed scheduled amount remains? This is not an estimate of current market value.
The sale-price range is $45,000 and the maximum is $385,000. Find the minimum price.
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