A comparable property sold for $450,000 but had a swimming pool valued at $25,000 that the subject property lacks. What adjustment should be made to the comparable?
Correct Answer
B) Subtract $25,000 from the comparable's sale price
When the comparable is superior to the subject (has a feature the subject lacks), the value of that feature must be subtracted from the comparable's sale price to make it equivalent to the subject.
Why This Is the Correct Answer
Option B is correct because the comparable property has a swimming pool worth $25,000 that the subject property does not have, making the comparable superior to the subject. To make the comparable equivalent to the subject property, we must remove the value advantage by subtracting $25,000 from the comparable's sale price. This adjustment accounts for the fact that the comparable would have sold for $25,000 less if it didn't have the pool, making it truly comparable to the subject property.
Why the Other Options Are Wrong
Option A: Add $25,000 to the comparable's sale price
Adding $25,000 would incorrectly increase the comparable's value, which would make the adjustment go in the wrong direction since the comparable is already superior to the subject property.
Option C: No adjustment is necessary
An adjustment is absolutely necessary because there is a significant difference ($25,000 swimming pool) between the comparable and subject properties that affects value.
Option D: Add $12,500 to account for depreciation
Adding $12,500 for depreciation is incorrect because it both goes in the wrong direction (adding instead of subtracting) and arbitrarily reduces the adjustment amount without justification.
CBS Rule
CBS: Comparable Better = Subtract. When the Comparable is Better than the subject, you Subtract the difference from the comparable's price.
How to use: When you see an adjustment question, first identify which property (comparable or subject) has the superior feature, then apply CBS - if the comparable is better, subtract the value of that feature.
Exam Tip
Always identify the direction of the adjustment first by asking 'Which property is superior?' before calculating the dollar amount.
Common Mistakes to Avoid
- -Confusing the direction of adjustment and adding when you should subtract
- -Making adjustments to the subject property instead of the comparable property
- -Applying arbitrary depreciation factors without proper justification
Concept Deep Dive
Analysis
This question tests the fundamental principle of sales comparison adjustments in real estate appraisal. The sales comparison approach requires making adjustments to comparable properties to account for differences between the comparable and the subject property. When a comparable property has a superior feature that the subject property lacks, the appraiser must subtract the value of that feature from the comparable's sale price. This adjustment process ensures that the comparable is made equivalent to the subject property for accurate valuation purposes.
Background Knowledge
The sales comparison approach requires adjustments when comparable properties differ from the subject property in features, condition, or other value-affecting characteristics. The fundamental rule is: if the comparable is superior to the subject, subtract the value difference; if the comparable is inferior to the subject, add the value difference.
Real-World Application
In practice, appraisers regularly encounter comparables with features like pools, upgraded kitchens, or additional bathrooms that the subject lacks, requiring downward adjustments to the comparable sales prices to accurately estimate the subject's value.
More Valuation Principles Questions
Which of the following best describes the bundle of rights theory in real estate?
Market value is best defined as:
The principle of substitution states that:
A comparable sale occurred 8 months ago for $450,000. Market conditions analysis shows property values have increased 0.5% per month. What is the adjusted sale price?
What is the difference between reproduction cost and replacement cost?
People Also Study
Property Description & Analysis
20% of exam
Market Analysis & Highest/Best Use
15% of exam
Appraisal Math & Statistics
15% of exam
USPAP (Ethics & Standards)
15% of exam
Report Writing & Compliance
10% of exam