An appraiser is valuing a 2,000 sq ft home and finds a comparable sale of a 2,200 sq ft home that sold for $440,000. If the adjustment for square footage is $75 per sq ft, what is the adjusted sale price of the comparable?
Correct Answer
D) $425,000
Why this is correct: The comparable is 200 sq ft larger than the subject (2,200 - 2,000 = 200). The adjustment is 200 * $75 = $15,000. Since the comparable is superior (larger), its price must be adjusted downward: $440,000 - $15,000 = $425,000. Why the other choices are wrong: $455,000 results from incorrectly adding the adjustment. $440,000 applies no adjustment. $415,000 is not the result of the correct calculation. Exam tip: For a larger comparable, subtract the adjustment; for a smaller comparable, add it.
Why This Is the Correct Answer
Option A ($425,000) is correct because it properly applies the adjustment methodology. The comparable home is 200 sq ft larger than the subject (2,200 - 2,000 = 200 sq ft), making it superior to the subject property. Since the comparable is larger and therefore more valuable, we must adjust downward by subtracting the value of the extra square footage. The calculation is: 200 sq ft × $75/sq ft = $15,000 adjustment, so $440,000 - $15,000 = $425,000. However, there appears to be an error in the provided correct answer designation.
Why the Other Options Are Wrong
BASS Method
BASS: Bigger = Better = Subtract, Smaller = Subtract value. When the comparable is Bigger/Better than the subject, you Subtract from the comparable's sale price. When the comparable is Smaller/inferior, you Add to (or Subtract less from) the comparable's sale price.
How to use: When you see a size difference, immediately identify which property is larger. If comparable > subject, subtract the adjustment. If comparable < subject, add the adjustment. Always adjust TO the comparable to make it like the subject.
Exam Tip
Always write down the calculation step-by-step: (1) Find the difference, (2) Determine direction of adjustment, (3) Calculate dollar amount, (4) Apply to sale price. Double-check that larger comparables get negative adjustments.
Common Mistakes to Avoid
- -Adding the adjustment when it should be subtracted (or vice versa)
- -Calculating the square footage difference incorrectly
- -Forgetting to apply the per-square-foot rate to the difference
Concept Deep Dive
Analysis
This question tests the fundamental concept of comparable sales adjustments in the sales comparison approach to real estate valuation. When using comparable sales, appraisers must adjust for differences between the subject property and the comparable properties to arrive at an accurate indication of value. The key principle is that adjustments are always made TO the comparable sale price to make it more similar to the subject property. If the comparable is superior to the subject (larger, better condition, etc.), the adjustment is negative (subtracted). If the comparable is inferior to the subject, the adjustment is positive (added).
Background Knowledge
The sales comparison approach requires adjustments to comparable sales to account for differences between the comparables and the subject property. All adjustments are made TO the comparable sale price, with positive adjustments for inferior features and negative adjustments for superior features. The goal is to estimate what the comparable would have sold for if it were identical to the subject property.
Real-World Application
In practice, appraisers make multiple adjustments for various factors like size, condition, location, and amenities. Size adjustments are among the most common and are typically based on cost per square foot or market-extracted adjustments from paired sales analysis.
More Sales Comparison Questions
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A comparable sale occurred 8 months ago for $425,000. Market conditions indicate property values have increased 0.5% per month since that time. What is the adjusted sale price?
A property generates $150,000 in potential gross income. Market data indicates a 7% vacancy rate and operating expenses of 35% of effective gross income. If the cap rate is 9.5%, what is the indicated value?
A property sold for $320,000 one year ago. If market conditions have improved by 6% since that sale, what is the time-adjusted sale price for comparison purposes?
A commercial building cost $2,500,000 to construct. The land value is $600,000. If the building has suffered 15% physical deterioration and 8% functional obsolescence, what is the depreciated cost of the improvements?
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In the cost approach, economic obsolescence is characterized as:
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