A subject property has 2,400 square feet and sold comparable properties range from 2,200 to 2,800 square feet. If the market indicates a $50 per square foot adjustment for size differences, what adjustment should be made to a 2,200 square foot comparable?
Correct Answer
A) +$10,000
The comparable is 200 square feet smaller than the subject (2,400 - 2,200 = 200). Since the comparable is inferior, a positive adjustment of 200 × $50 = $10,000 is needed to make the comparable equivalent to the subject.
Why This Is the Correct Answer
Option A is correct because the comparable property at 2,200 square feet is 200 square feet smaller than the subject property at 2,400 square feet. Since the comparable is inferior (smaller), we must make a positive adjustment to increase its indicated value. The calculation is straightforward: 200 square feet difference × $50 per square foot = +$10,000. This positive adjustment compensates for the comparable's smaller size and makes it equivalent to the subject property for comparison purposes.
Why the Other Options Are Wrong
Option B: -$10,000
Option B is incorrect because it applies a negative adjustment when a positive adjustment is needed. A negative adjustment would be used if the comparable were superior to the subject (larger), but since the comparable is smaller than the subject, it requires a positive adjustment to bring its value up to the subject's level.
Option C: +$20,000
Option C calculates the wrong square footage difference, likely using 400 square feet instead of the correct 200 square feet. While the positive direction is correct, the magnitude is double what it should be, resulting in +$20,000 instead of +$10,000.
Option D: -$20,000
Option D is wrong on both counts - it uses the incorrect magnitude (400 square feet difference instead of 200) and applies a negative adjustment when a positive adjustment is required. This would be appropriate if the comparable were 400 square feet larger than the subject, which is not the case.
CUPS Method
CUPS: Comparable Under subject = Positive adjustment, Comparable Superior = negative adjustment. Think of filling a cup - if the comparable is 'under' (inferior to) the subject, you need to add (+) value to fill it up to the subject's level.
How to use: When you see an adjustment question, immediately identify whether the comparable is superior or inferior to the subject in the given characteristic. If inferior (under), use positive adjustment. If superior, use negative adjustment. Then multiply the difference by the given rate.
Exam Tip
Always write out the calculation step by step: 1) Subject size minus comparable size = difference, 2) Identify if comparable is superior or inferior, 3) Apply appropriate sign, 4) Multiply difference by adjustment rate. Double-check that your adjustment direction makes logical sense.
Common Mistakes to Avoid
- -Confusing the direction of adjustment - applying negative when positive is needed or vice versa
- -Calculating the square footage difference incorrectly by using wrong numbers
- -Making adjustments to the subject property instead of to the comparable property
Concept Deep Dive
Analysis
This question tests the fundamental concept of adjustments in the sales comparison approach, specifically how to handle size differences between comparable properties and the subject property. The key principle is that adjustments are always made TO the comparable property to make it equivalent to the subject property. When a comparable is inferior to the subject (smaller in this case), a positive adjustment is required to bring the comparable's value up to match what it would be worth if it were the same size as the subject. The direction and magnitude of adjustments are critical skills that appraisers must master to produce credible value opinions.
Background Knowledge
In the sales comparison approach, adjustments are made to comparable properties to account for differences between the comparables and the subject property. The fundamental rule is that adjustments are always made TO the comparable, not to the subject, and the goal is to answer the question: 'What would this comparable have sold for if it were identical to the subject property?'
Real-World Application
In practice, appraisers regularly make size adjustments when comparable sales vary in square footage from the subject property. Market-derived adjustment rates like $50 per square foot are typically developed through paired sales analysis or regression analysis of recent sales data in the local market.
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