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.
More sales-comparison-approach Questions
Excess land differs from surplus land in that excess land:
A subject property has a 3-car attached garage. The appraiser locates two valid paired sales: Sale 1 (with 3-car garage) sold for $512,000; Sale 2 (with 2-car garage) sold for $497,600. Both properties are otherwise identical — same age, quality, GLA, lot size, and neighborhood — and sold 5 days apart in a balanced market. The appraiser also confirms via public records and listing photos that no other functional or physical differences exist. What is the indicated contributory value of the *third* garage stall?
The most appropriate unit of comparison is determined by:
An appraiser analyzes three paired sales to isolate the effect of a fireplace. In Pair 1, the property with a fireplace sold for $12,000 more; in Pair 2, $10,500 more; and in Pair 3, $13,500 more. All pairs are highly similar and recent. The appraiser selects $12,000 as the final adjustment. Which principle best supports this selection?
An appraiser identifies two comparable sales that are identical in all respects except that Sale #1 has a finished basement (1,200 sq ft) and sold for $432,000, while Sale #2 has an unfinished basement of the same size and sold for $408,000. Both sales occurred within three weeks of each other in a stable market. The appraiser intends to apply a per-square-foot adjustment for basement finish to the subject property, which has a 1,000 sq ft finished basement. What is the appropriate paired-sales-derived adjustment amount per square foot for a finished basement?
Three sales support $520,000; the borrower's purchase contract is $505,000. May the appraisal conclude above the contract price?
An appraiser develops a $3,200 adjustment for a fireplace based on a single paired sale. The subject has a fireplace; Comparable A does not. The appraiser applies +$3,200 to Comparable A. Later, the appraiser identifies a second pair showing a $4,600 fireplace contribution. The appraiser replaces the original adjustment with $3,900 — the simple average — and applies it to Comparable A. What is the appropriate USPAP-compliant action regarding the adjustment amount?
A comparable sold for $300,000 with the seller carrying a loan 2 points below market, a benefit worth $8,000. What is its cash-equivalent price?
Three comparables adjust to $412,000 (gross adj. 5%), $405,000 (gross adj. 22%), and $410,000 (gross adj. 8%). What is the best-supported value conclusion?
Why is a foreclosure sale generally a poor comparable in a stable market?
People Also Study
Valuation Principles & Procedures
25% of exam
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