Two verified cash-equivalent sales are identical after all adjustments, except that one has an indoor pool. The property without the pool sold for $1,420,000 and the property with the pool sold for $1,390,000, in an unchanged market. What adverse effect on whole-property price does this pair indicate?
Correct Answer
B) $30,000
1420000−1390000 = 30000. Common errors: reporting the with-pool price instead of the difference gives $1,390,000; averaging the two prices instead of taking their difference gives $1,405,000; splitting the difference between the two sales gives $15,000.
Why This Is the Correct Answer
Option B is correct because the no-pool sale is $1,420,000 and the pool sale is $1,390,000, and $1,420,000 - $1,390,000 = $30,000. Since everything else is identical in an unchanged market, the $30,000 gap is the adverse whole-property price effect of the pool.
Why the Other Options Are Wrong
Option A: $15,000
Option A, $15,000, halves the price difference: ($1,420,000 - $1,390,000) / 2 = $15,000. The pair isolates the full $30,000 difference, so there is no reason to split it.
Option C: $1,390,000
Option C, $1,390,000, is the price of the sale with the pool, not the effect of the pool. The price effect is the difference between the two sales, $30,000.
Option D: $1,405,000
Option D, $1,405,000, is the average of the two prices: ($1,420,000 + $1,390,000) / 2 = $1,405,000. An average does not isolate a feature's effect; the difference of $30,000 does.
Same except one, subtract
When two sales match except for one feature, subtract their prices. The difference is that feature's market effect.
How to use: Use same except one, subtract whenever a question isolates a single difference between two sales.
Exam Tip
In a clean paired-sale question, the answer is usually the simple price difference. Do not average or halve it unless the question gives a reason.
Common Mistakes to Avoid
- -Assuming a costly feature must add value
- -Averaging the paired prices instead of subtracting
- -Confusing a market price effect with cost-based depreciation
Concept Deep Dive
Analysis
This question tests paired sales analysis. When two sales are identical except for one feature, the difference in their prices isolates the market's reaction to that feature. Here the sale with the indoor pool sold for less, so the pool shows an adverse price effect equal to the price gap.
Background Knowledge
Paired sales analysis compares sales that are similar in all respects except one to measure the market's reaction to that difference. Adjustment rates can be developed through paired sales, statistical analysis or modeling. A feature that costs money to build can still reduce value if buyers in that market see it as a burden.
Real-World Application
In a neighborhood where buyers dislike the upkeep of indoor pools, an appraiser finds two near-identical homes that sold in the same month. The home with the pool sold for less, and she uses the difference to support a negative adjustment for that feature.
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