A residential site adjoins a rendering plant. How should the effect be measured?
Correct Answer
A) By comparing nearby affected and unaffected sales
Use relevant market evidence, such as sufficiently similar affected and unaffected sales, to isolate the influence after other differences are considered. The rendering plant’s expenses do not measure the subject’s loss, and a fixed 20% deduction has no support from adjacency alone.
Why This Is the Correct Answer
Option A is correct because comparing sufficiently similar affected and unaffected sales, after accounting for other differences, isolates how the market reacts to the plant. This is market-based evidence of the effect on the subject. It measures what buyers actually pay rather than assuming an amount.
Why the Other Options Are Wrong
Option B: By deducting the plant's own operating costs
Option B deducts the plant's own operating costs. The plant's expenses relate to its business, not to the subject site's loss in value.
Option C: By assuming a fixed twenty percent reduction
Option C assumes a fixed twenty percent reduction. A set percentage has no support from adjacency alone; the effect must be measured from market evidence.
Option D: By ignoring it, as external factors are excluded
Option D ignores the plant because external factors are excluded. External influences are a recognized source of value loss and should be analyzed, not ignored.
Let the market measure
Compare what buyers paid near the nuisance with what they paid away from it. The difference, after other adjustments, is the effect.
How to use: Use this when asked how to quantify any external influence.
Exam Tip
Prefer answers based on market evidence over answers that use fixed percentages or unrelated costs.
Common Mistakes to Avoid
- -Applying a rule-of-thumb percentage discount
- -Using the nuisance owner's costs as the measure
- -Ignoring external influences entirely
Concept Deep Dive
Analysis
This question tests how to measure an external influence on site value. The effect of a nearby nuisance such as a rendering plant is measured with market evidence, typically by comparing sales of similar affected and unaffected properties. Arbitrary percentages or the nuisance's own costs do not measure the subject's loss.
Background Knowledge
A negative external influence is a loss in value caused by factors outside the property, such as nearby nuisances. For a site, it is measured from market data, commonly through paired sales of affected and unaffected properties or other market-supported techniques. When an improved property is affected, only the share of the loss attributable to the improvements is treated as external obsolescence.
Real-World Application
An appraiser values a homesite next to an animal rendering plant that produces strong odors. The appraiser finds sales of similar sites near and away from the plant, adjusts for other differences, and uses the remaining price gap to measure the plant's effect.
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