An appraiser completes a URAR form and determines the subject property has 2,400 square feet of gross living area. The comparable sale has 2,200 square feet and sold for $450,000. If the adjustment for square footage is $75 per square foot, what is the adjusted sale price of the comparable?
Correct Answer
C) $465,000
The comparable has 200 square feet less than the subject (2,400 - 2,200 = 200). Since it's smaller, we add value: 200 × $75 = $15,000. Adjusted price: $450,000 + $15,000 = $465,000.
Why This Is the Correct Answer
Option C ($465,000) is correct because the comparable has 200 square feet less than the subject property (2,400 - 2,200 = 200 sq ft). Since the comparable is smaller, we must add value to compensate for this deficiency. The calculation is 200 sq ft × $75/sq ft = $15,000 adjustment. Adding this to the original sale price: $450,000 + $15,000 = $465,000. This represents what the comparable would have likely sold for if it had the same square footage as the subject.
Why the Other Options Are Wrong
Option A: $435,000
Option A ($435,000) is incorrect because it subtracts the adjustment instead of adding it. This would be the result if someone mistakenly calculated $450,000 - $15,000, which would be appropriate only if the comparable were larger than the subject property.
Option B: $450,000
Option B ($450,000) is incorrect because it makes no adjustment at all. This ignores the 200 square foot difference between the comparable and subject property, which would result in an inaccurate indication of value.
Option D: $480,000
Option D ($480,000) is incorrect because it applies an excessive adjustment of $30,000 ($450,000 + $30,000 = $480,000). This might result from incorrectly calculating the square footage difference or doubling the per-square-foot adjustment rate.
CATS Rule
CATS = Comparable Adjustment To Subject. If the Comparable is inferior (smaller, worse condition, etc.), ADD value. If the Comparable is superior (larger, better condition, etc.), SUBTRACT value. Think: 'Cats always land on their feet' - adjustments help comparables 'land' at the subject's level.
How to use: When you see an adjustment question, first identify whether the comparable is superior or inferior to the subject in the given characteristic. Apply CATS: if inferior, add; if superior, subtract. Always adjust the comparable TO match the subject.
Exam Tip
Always double-check your math and ensure you're adjusting in the correct direction. Write out the calculation step-by-step: (1) Find the difference, (2) Determine if adding or subtracting, (3) Calculate the dollar adjustment, (4) Apply to the sale price.
Common Mistakes to Avoid
- -Adjusting in the wrong direction (subtracting when should add)
- -Forgetting to make any adjustment when there are clear differences
- -Miscalculating the square footage difference between properties
Concept Deep Dive
Analysis
This question tests the fundamental concept of making adjustments in the sales comparison approach, specifically how to adjust comparable sales for differences in gross living area. The key principle is that adjustments are always made TO the comparable sale to make it more similar to the subject property. When a comparable is smaller than the subject, value must be added to the comparable's sale price to reflect what it would have sold for if it had the same square footage as the subject. This adjustment process is critical in the URAR (Uniform Residential Appraisal Report) form and represents one of the most common adjustments appraisers make.
Background Knowledge
In the sales comparison approach, adjustments are made to comparable sales to account for differences between the comparable and the subject property. The goal is to estimate what each comparable would have sold for if it were identical to the subject property. Adjustments can be made for various factors including size, condition, location, and amenities.
Real-World Application
In practice, appraisers regularly make square footage adjustments when preparing URAR forms for mortgage lending. They analyze recent sales of similar properties and adjust for size differences to arrive at a supportable opinion of value. The per-square-foot adjustment rate is typically derived from market analysis of how buyers value additional space.
More Report Writing Questions
Under FIRREA, which federal agency has the authority to set minimum standards for real estate appraisals in federally related transactions?
What is the minimum transaction threshold for requiring a state licensed or certified appraiser under Title XI for most federally related transactions?
The Dodd-Frank Act established which requirement specifically related to appraisal independence?
Which of the following is NOT a responsibility of the Appraisal Subcommittee (ASC)?
State appraiser regulatory agencies are primarily responsible for which of the following functions?
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