An appraiser develops a $36,000 net adjustment for superior site topography in a residential subdivision. Later, the appraiser discovers that two of the three supporting paired sales involved properties with both superior topography *and* upgraded exterior finishes — features not present in the subject or remaining comparable. What is the most appropriate action per USPAP and SR 1-4?
Correct Answer
C) Re-analyze the pairs to isolate the topography component, and develop a revised, supportable net adjustment.
USPAP Standards Rule 1-4(a) requires adjustments to be based on market evidence and reflect the contribution of individual characteristics. When paired sales contain multiple unadjusted differences (e.g., topography + finishes), the original adjustment is not isolated and therefore not supportable. The appraiser must re-analyze—either by finding cleaner pairs, using multiple regression, or applying sequential adjustments—to isolate the topography effect. Option C complies directly with SR 1-4(a) and (b). Options A and B ignore the lack of isolation; D substitutes an unrelated adjustment type, violating logical cause-and-effect analysis.
Why This Is the Correct Answer
Re-analyzing the pairs to isolate the topography component and deriving a revised, supportable adjustment is the only response that repairs the defect rather than annotating it. The development requirement is that adjustments be based on market evidence reflecting the contribution of the individual characteristic, and a confounded figure does not meet it. Several legitimate techniques are available, and any of them produces a number the appraiser can defend. The revised figure may end up higher or lower than $36,000, which is itself a reason the re-analysis matters.
Why the Other Options Are Wrong
Option A: Retain the $36,000 adjustment but add a qualitative caveat about potential confounding factors.
A qualitative caveat tells the reader the number may be wrong while still using it, which leaves the value conclusion resting on an unsupported adjustment. Disclosure is required but it is not a substitute for analysis, and a report can mislead even while confessing uncertainty if it applies the figure anyway. The appraiser knows the adjustment is confounded and has the tools to fix it.
Option B: Apply the adjustment as-is because the magnitude is consistent with neighborhood norms.
Consistency with neighborhood norms is not evidence that this particular adjustment isolates this particular characteristic. A figure can look reasonable in magnitude and still be composed of the wrong ingredients, which is exactly the situation here. Judging an adjustment by whether it seems plausible rather than by how it was derived abandons the support requirement.
Option D: Replace the adjustment with a market conditions adjustment to compensate for the error.
Substituting a market conditions adjustment addresses a completely different element of comparison, since market conditions measures change over time rather than a physical site characteristic. Using one adjustment to offset an error in another destroys the logical structure of the grid and makes the analysis unreviewable. Offsetting errors also tend to compound rather than cancel across multiple comparables.
Two Causes, No Adjustment
A pair with two differences yields a number that belongs to neither. Either separate the causes with more data or a model, or find pairs that differ in one thing only. Never carry a compound figure into the grid.
How to use: When a stem reveals a second difference in supporting pairs, choose the re-analyze option. Reject caveats, plausibility arguments, and any answer that fixes one element with a different element.
Exam Tip
Watch for offsetting-error distractors. Compensating for a bad physical adjustment with a market conditions adjustment is always wrong, because each element of comparison must be supported on its own terms.
Common Mistakes to Avoid
- -Retaining a confounded adjustment and disclosing the confounding instead of fixing it
- -Validating an adjustment by its apparent reasonableness rather than its derivation
- -Offsetting an error in one element of comparison with a change to another
Concept Deep Dive
Analysis
Paired sales analysis derives an adjustment by attributing an entire price gap to one difference, which works only when one difference is all there is. Discovering that two of three supporting pairs carried both superior topography and upgraded exterior finishes destroys that isolation for those pairs, because the observed gap now contains two effects mixed together in unknown proportions. The $36,000 figure is therefore not an adjustment for topography; it is an adjustment for topography plus finishes, and applying it to a subject and comparable that share neither the finishes nor the topography advantage would overstate the topography contribution by whatever the finishes were worth. The remedy is analytical rather than cosmetic. The appraiser can seek cleaner pairs that differ only in topography, use the remaining clean pair as a check, derive a separate finishes adjustment from other data and net it out, or use multiple regression, which is designed precisely to estimate several effects simultaneously. Whichever route she takes, the outcome must be a revised figure she can support.
Background Knowledge
You need paired sales analysis and its isolation requirement, the development obligation that adjustments be supported by market evidence, and the alternative support techniques including sequential adjustment, grouped pairs, and multiple regression. You should also know the elements of comparison and why each adjustment must address its own element.
Real-World Application
An appraiser discovers two of her three topography pairs also differed in exterior finishes. She derives a finishes adjustment from four other pairs in the same subdivision, nets it out of the contaminated pairs, finds the topography contribution clusters near $24,000, revises the grid, and documents both derivations.
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