A paired sales analysis yields an adjustment of −$15,000 for a property located on a busy arterial street. Later, the appraiser discovers that all three paired properties with arterial exposure also had 20% smaller lots than their non-arterial counterparts — a difference not initially controlled for. What is the most appropriate action per USPAP?
Correct Answer
D) Re-analyze the pairs to isolate the arterial impact, or discard the pairs if adequate control is impossible
Advisory Opinion 17 (AO-17) states that paired sales analysis requires 'a high degree of similarity' and that 'the influence of only one variable should be isolated.' When an uncontrolled variable (here, lot size) co-varies systematically with the target feature (arterial exposure), the extracted adjustment is confounded and unreliable. USPAP Standards Rule 1-4 requires adjustments to be 'supported by market-derived data,' and confounded pairs do not satisfy that. The appraiser must either re-identify better pairs (e.g., controlling for lot size) or discard the flawed pairs — not apply an unsupported adjustment. Option D is the only action consistent with USPAP’s emphasis on credible, supportable analysis.
Why This Is the Correct Answer
The paired analysis measures arterial exposure and lot size together, so the appraiser must re-analyse with lot size controlled or discard the pairs where adequate control is impossible.
Why the Other Options Are Wrong
Option A: Retain the −$15,000 adjustment but add a qualitative comment about lot size
Retaining a figure known to be contaminated and adding a comment leaves the flawed adjustment in the analysis.
Option B: Increase the adjustment to −$18,000 to account for combined impacts
Increasing the adjustment to $18,000 substitutes an unsupported number for an unreliable one.
Option C: Discard the paired analysis and rely solely on regression analysis
Discarding paired analysis entirely overreacts. Re-analysis with proper control may well succeed, and regression carries its own requirements.
One Variable, or No Conclusion
One Variable, or No Conclusion. Two differences and the number belongs to neither.
How to use: List every difference between the paired properties before accepting the result. An uncontrolled variable invalidates the pair.
Exam Tip
USPAP prohibits using an analysis known to be flawed. Disclosure does not rescue a contaminated adjustment.
Common Mistakes to Avoid
- -Keeping a contaminated adjustment with a qualitative note
- -Adjusting the figure by an unsupported amount
- -Abandoning the method before attempting re-analysis
Concept Deep Dive
Analysis
Paired sales analysis works by isolating a single variable: two properties alike in every respect except one, with the price difference attributed to that difference. The method collapses the moment a second variable is present, because the observed difference then reflects both influences and cannot be assigned to either. That is exactly the discovery here — all three arterial properties also had 20 percent smaller lots, so the $15,000 measures arterial exposure plus lot size, in unknown proportions. USPAP requires the appraiser not to use an analysis known to be flawed, so the response is to re-analyse: find pairs where lot size is controlled, or adjust for lot size first from independent evidence and re-derive the arterial effect from what remains. Where no adequate control is possible, the pairs must be discarded and another method used. The rejected answers all preserve a contaminated figure — keeping it with a comment, inflating it by an unsupported amount, or abandoning the method entirely when a re-analysis may well succeed.
Background Knowledge
Paired sales analysis isolates a single variable by comparing otherwise similar properties. Where an uncontrolled second variable is present, the derived adjustment conflates both influences and must be re-derived or discarded.
Real-World Application
An appraiser discovering an uncontrolled lot size difference adjusts for lot size from independent evidence, re-derives the arterial effect from the residual, and documents both steps.
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