Market evidence shows diminishing marginal contribution beyond an adequate site size. Why might applying a whole-site average $/sf to extra area overstate its adjustment?
Correct Answer
D) The whole-site average can exceed the marginal value of the extra area.
A whole-lot average unit value need not equal the marginal contribution of additional area. Diminishing contribution must be supported for the relevant site sizes and uses, not assumed in every market. Improved-property pairs may help but are not universally the only source.
Why This Is the Correct Answer
Option D is correct because the whole-site average $/sf blends the higher value of the base, usable site with the lower value of the excess area. Under the principle of contribution and marginal analysis, the extra area is worth what it adds to total value, which can be less than the average. Using the average would then inflate the adjustment.
Why the Other Options Are Wrong
Option A: Vacant land sales in the market are inflated above their true value by speculation.
Option A blames speculation for inflating vacant land sales. Nothing in the facts shows speculative pricing; the issue is that the marginal contribution of extra area can be lower than the whole-site average.
Option B: A tax assessor’s schedule legally fixes market adjustment amounts.
Option B says a tax assessor's schedule legally fixes market adjustment amounts. Assessment schedules do not set market-based adjustments; the adjustment must reflect how the market reacts to the added area.
Option C: Site size does not affect the prices that buyers pay for homes.
Option C says site size does not affect the prices buyers pay for homes. That contradicts the premise, which states market evidence of a contribution from site area that diminishes beyond an adequate size.
Average Is Not Marginal
The average price per square foot of a whole lot describes the whole; the extra slice of land is worth only what it adds.
How to use: Use this when a question compares a whole-site unit rate with the value of surplus or excess area.
Exam Tip
When the stem mentions diminishing contribution, look for the answer that distinguishes average unit value from marginal contribution.
Common Mistakes to Avoid
- -Applying the whole-lot average price per square foot to excess land
- -Assuming diminishing contribution without local market evidence
- -Treating assessment schedules as market adjustment support
Concept Deep Dive
Analysis
This question tests the difference between average and marginal value for site area. When market evidence shows diminishing contribution beyond an adequate site size, extra land adds less per square foot than the average of the whole site. Applying the whole-site average to the extra area can therefore overstate the adjustment.
Background Knowledge
The principle of contribution holds that a component is worth what it adds to total value, which is an application of marginal analysis. For land, the first increments needed for the intended use often contribute more than additional increments, so average unit values and marginal values can differ. Any diminishing pattern must be supported for the relevant site sizes and uses.
Real-World Application
Typical homesites in a neighborhood are about 8,000 sf, and the comparable has a 12,000 sf lot. Market pairs show the extra 4,000 sf adds far less per square foot than the lot's overall average, so the appraiser uses a lower marginal rate for the site adjustment.
More Sales Comparison Questions
Supported adjustments are: non-market financing $10,000, GLA $36/sf, garage $3,500 per car, pool/spa $12,500. A comparable identical to the 2,800 sf subject sold for $267,000 with non-market financing. What is its adjusted price?
Using GLA $36/sf and non-market financing $10,000: a 3,100 sf comparable sold for $277,000 with non-market financing; the subject has 2,800 sf. Bath count differences are not adjusted. What is the adjusted price?
Using garage $3,500 per car and pool/spa $12,500: a comparable with a 2-car garage and a pool/spa sold for $268,000. The subject has a 3-car garage and no pool. What is the adjusted price?
Using GLA $36/sf, garage $3,500 per car and pool/spa $12,500: a 2,600 sf comparable with a 2-car garage and a pool/spa sold for $264,000. The subject is 2,800 sf with a 3-car garage and no pool. What is the adjusted price?
In a neighborhood with declining values and marketing times over six months, what must Fannie Mae lenders confirm about the sales comparison analysis?
A house is a 4,000 square foot home in an area of 2,000 square foot homes. How must the appraiser treat this over-improvement in the sales comparison grid?
According to the Interagency Appraisal and Evaluation Guidelines, which items should an appraisal’s market conditions discussion include?
A comparable listed at $420,000 and sold for $399,000. What sale-to-list price ratio (sale price ÷ list price) does this indicate?
An appraiser wants to describe the neighborhood boundaries in a Fannie Mae report. Which approach is acceptable?
Which of these is listed by Fannie Mae as a sales or financing concession?
People Also Study
Real Estate Market
13.6% of exam
Property Description
11.8% of exam
Land or Site Valuation
4.5% of exam
Cost Approach
13.6% of exam
Income Approach
8.2% of exam