A comparable property sold for $400,000 but was 10% superior to the subject property in overall condition. What is the adjusted sale price?
Correct Answer
D) $360,000
Why this is correct: When a comparable is superior to the subject, its price must be adjusted downward to make it equivalent. A 10% adjustment means the subject is worth 10% less than the comparable. Calculation: $400,000 * (100% - 10%) = $400,000 * 0.90 = $360,000. Why the other choices are wrong: "$410,000" would result from adding 10% ($400,000 * 1.10), incorrectly treating the comparable as inferior. "$390,000" subtracts a flat $10,000, not 10%. "$440,000" adds 10% to the price, which is the wrong direction. Exam tip: For a percentage adjustment, apply it to the comparable's sale price. If the comp is better, subtract the percentage. If worse, add.
Why This Is the Correct Answer
Option B ($360,000) is correct because when the comparable is 10% superior to the subject, we must reduce the comparable's sale price by 10% to account for this superiority. The calculation is $400,000 × (1 - 0.10) = $400,000 × 0.90 = $360,000. This downward adjustment reflects that the subject property, being inferior in condition, would sell for less than the comparable actually sold for.
Why the Other Options Are Wrong
Option A: $410,000
Option A ($410,000) adds 2.5% to the sale price, which is both the wrong direction and wrong magnitude of adjustment for this scenario.
Option B: $390,000
Option B ($390,000) represents only a 2.5% adjustment ($400,000 - $10,000), which doesn't properly account for the full 10% superiority difference stated in the problem.
Option C: $440,000
Option C ($440,000) incorrectly adds 10% to the sale price ($400,000 × 1.10), which would be the wrong direction of adjustment. This would suggest the subject is superior to the comparable, which contradicts the given information.
CATS Rule
CATS = Comparable Adjustments To Subject. Remember: 'Superior Subtract, Inferior Add' - if the comparable is Superior to the subject, Subtract from the comp's price; if the comparable is Inferior to the subject, Add to the comp's price.
How to use: When you see an adjustment question, first identify whether the comparable is superior or inferior to the subject, then apply CATS: Superior = Subtract, Inferior = Add.
Exam Tip
Always read carefully to determine which property (comparable or subject) has the superior feature, then remember that adjustments flow in the opposite direction of the superiority.
Common Mistakes to Avoid
- -Adjusting in the wrong direction (adding when should subtract)
- -Confusing which property is superior vs. inferior
- -Making adjustments to the subject instead of the comparable
Concept Deep Dive
Analysis
This question tests the fundamental concept of sales comparison adjustments in real estate appraisal. When using comparable sales, appraisers must adjust for differences between the comparable property and the subject property to arrive at an accurate value indication. The key principle is that adjustments are always made TO the comparable sale price to make it more like the subject property. If the comparable is superior to the subject, the comparable's sale price must be adjusted downward because a superior property would naturally sell for more than the subject property would.
Background Knowledge
In the sales comparison approach, adjustments are made to comparable sale prices to account for differences between the comparable and subject properties. The fundamental rule is that adjustments are always made TO the comparable to make it more similar to the subject property.
Real-World Application
In practice, appraisers constantly make these adjustments for differences in condition, size, location, amenities, and other factors. For example, if comparing a renovated home (comparable) to one needing updates (subject), the appraiser would adjust the renovated home's sale price downward to reflect what the subject would likely sell for in its current condition.
More Sales Comparison Questions
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