An appraiser is developing an opinion of market value for a 20-unit apartment building. The appraiser finds three comparable sales with the following information: Sale 1: 18 units, sold for $1,800,000; Sale 2: 22 units, sold for $2,200,000; Sale 3: 24 units, sold for $2,280,000. What is the average price per unit for these comparables?
Correct Answer
C) $96,875 per unit
Sale 1: $1,800,000 ÷ 18 = $100,000/unit; Sale 2: $2,200,000 ÷ 22 = $100,000/unit; Sale 3: $2,280,000 ÷ 24 = $95,000/unit. Average: ($100,000 + $100,000 + $95,000) ÷ 3 = $96,875 per unit.
Why This Is the Correct Answer
Option C is correct because it follows the proper two-step calculation process. First, each sale's price per unit is calculated: Sale 1 ($1,800,000 ÷ 18 = $100,000), Sale 2 ($2,200,000 ÷ 22 = $100,000), and Sale 3 ($2,280,000 ÷ 24 = $95,000). Second, these three per-unit values are averaged: ($100,000 + $100,000 + $95,000) ÷ 3 = $295,000 ÷ 3 = $96,875 per unit. This methodology ensures each comparable sale is weighted equally regardless of size.
Why the Other Options Are Wrong
Option A: $95,000 per unit
This represents the per-unit value of only Sale 3 ($2,280,000 ÷ 24 = $95,000) and fails to include the other two comparables in the average calculation.
Option B: $100,000 per unit
This represents the per-unit value of Sales 1 and 2 ($100,000 each) but ignores Sale 3's lower per-unit value of $95,000 in the averaging process.
Option D: $102,500 per unit
This figure doesn't correspond to any logical calculation from the given data and appears to be a distractor that might result from computational errors or misunderstanding the averaging process.
DTA Method
DTA = Divide, Then Average. First Divide each sale price by units, Then Average the results. Remember: Don't average the total sales and total units - that weights larger properties more heavily.
How to use: When you see unit comparison questions, immediately write 'DTA' and follow the two steps: 1) Divide each sale by its units, 2) Average those per-unit results. This prevents the common error of combining totals first.
Exam Tip
Always show your work step-by-step for unit calculations. Write out each sale's per-unit calculation separately before averaging to avoid computational errors and ensure you're following the correct methodology.
Common Mistakes to Avoid
- -Adding all sale prices and dividing by total units instead of averaging individual per-unit values
- -Forgetting to include all three comparables in the final average
- -Rounding intermediate calculations too early, leading to final answer errors
Concept Deep Dive
Analysis
This question tests the fundamental concept of unit comparison analysis in commercial real estate appraisal, specifically for income-producing properties. The appraiser must calculate price per unit for each comparable sale and then determine the average to establish a baseline unit value. This method is commonly used in the sales comparison approach for multi-unit residential properties like apartment buildings. The calculation requires dividing each sale price by the number of units, then averaging those per-unit values to derive a meaningful comparison metric.
Background Knowledge
Unit comparison analysis is a standard technique in commercial appraisal where properties are compared on a per-unit basis to normalize for size differences. This method is particularly useful for apartment buildings, office complexes, and other multi-unit properties where the number of units directly correlates with income potential.
Real-World Application
In practice, appraisers use per-unit analysis to quickly screen potential comparables and make initial value estimates. However, they would also consider other factors like unit mix, condition, location, and amenities before making final adjustments to arrive at a concluded value for the subject property.
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