A comparable property sold for $450,000. It has a two-car garage worth $8,000, while the subject has a three-car garage worth $12,000. What adjustment should be made to the comparable?
Correct Answer
A) Add $4,000
Since the subject property is superior (three-car garage worth $12,000 vs. two-car garage worth $8,000), we add the $4,000 difference to the comparable's sale price to make it equivalent to the subject.
Why This Is the Correct Answer
Option A is correct because the subject property has a superior garage feature (three-car garage worth $12,000) compared to the comparable (two-car garage worth $8,000). Since the comparable is inferior by $4,000 ($12,000 - $8,000), we must add $4,000 to the comparable's sale price to make it equivalent to the subject property. This upward adjustment compensates for the comparable's deficiency and brings it to the same level as the subject for comparison purposes.
Why the Other Options Are Wrong
Option B: Subtract $4,000
Subtracting $4,000 would be incorrect because it assumes the comparable is superior to the subject, which is the opposite of the actual situation. This would make the adjusted comparable even more inferior to the subject property.
Option C: Add $12,000
Adding $12,000 uses only the subject's garage value without considering the comparable's existing garage value. This ignores the fact that the comparable already has some garage value ($8,000) and would result in over-adjusting the comparable.
Option D: Subtract $8,000
Subtracting $8,000 uses only the comparable's garage value and applies it in the wrong direction. This would penalize the comparable for having a garage feature rather than adjusting for the difference between the two properties.
COMPASS Method
COMPASS: COmparable Minus Plus Adjusts Subject Similarity. When comparable is inferior, PLUS (add). When comparable is superior, MINUS (subtract). Always adjust TO the comparable to match the subject.
How to use: When you see an adjustment question, identify which property (subject or comparable) has the superior feature, then remember COMPASS - if comparable is inferior, add the difference; if comparable is superior, subtract the difference.
Exam Tip
Always identify the direction of adjustment first by determining which property has the better feature, then calculate the dollar difference between the two features rather than using absolute values.
Common Mistakes to Avoid
- -Confusing the direction of adjustment by adding when you should subtract or vice versa
- -Using absolute feature values instead of calculating the difference between subject and comparable
- -Forgetting that adjustments are always made TO the comparable, not to the subject property
Concept Deep Dive
Analysis
This question tests the fundamental principle of sales comparison adjustments in real estate appraisal. The sales comparison approach requires adjustments to comparable properties to make them equivalent to the subject property being appraised. When a comparable property is inferior to the subject property in any feature, an upward adjustment (addition) must be made to the comparable's sale price. Conversely, when a comparable is superior to the subject, a downward adjustment (subtraction) is required. The adjustment amount should reflect the difference in value between the features being compared.
Background Knowledge
In the sales comparison approach, adjustments are always made TO the comparable properties to make them equivalent TO the subject property. The direction of adjustment depends on whether the comparable is superior or inferior to the subject in each feature being analyzed.
Real-World Application
In practice, appraisers constantly make these adjustments when comparing sold properties to their subject property. For example, if appraising a home with a pool and the comparable sale had no pool, the appraiser would add the value of a pool to the comparable's sale price to determine what that comparable would have sold for if it had the same amenities as the subject.
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