An appraiser is valuing a single-family residence built in 1985. The subject has 2,200 square feet and recently sold comparable properties average $150 per square foot. After making appropriate adjustments totaling +$8,000, what is the indicated value using the sales comparison approach?
Correct Answer
C) $338,000
The calculation is: 2,200 sq ft × $150/sq ft = $330,000 base value, plus $8,000 in adjustments = $338,000 indicated value. The adjustments are added to the base comparable value to account for differences between the subject and comparables.
Why This Is the Correct Answer
Option C correctly applies the two-step calculation process for the sales comparison approach. First, the base value is calculated: 2,200 square feet × $150 per square foot = $330,000. Then, the positive adjustment of $8,000 is added to account for differences where the subject property is superior to the comparables, resulting in $330,000 + $8,000 = $338,000. The positive adjustment indicates that the subject has features or characteristics that are better than the average of the comparable sales.
Why the Other Options Are Wrong
Option A: $322,000
$322,000 results from incorrectly subtracting the adjustments ($330,000 - $8,000) instead of adding them, which would only be correct if the adjustments were negative
Option B: $330,000
$330,000 represents only the base calculation (2,200 × $150) without applying any adjustments, which ignores a critical step in the sales comparison approach
Option D: $346,000
$346,000 appears to result from an error in the base calculation or double-counting adjustments, as it exceeds the correct answer by $8,000
BASE + ADJUST Formula
Remember 'BASE + ADJUST': Calculate the BASE value (size × price per unit), then ADJUST by adding positive adjustments or subtracting negative ones. Think 'Better = Bigger number' - if subject is better, add to get a bigger value.
How to use: When you see a sales comparison problem, immediately identify: 1) BASE calculation (square feet × price per sq ft), 2) ADJUST direction (+ for superior subject features, - for inferior), 3) Final value = BASE ± ADJUSTMENTS
Exam Tip
Always perform the calculation in two clear steps: base value first, then adjustments. Double-check whether adjustments should be added or subtracted by considering if the subject property is superior (+) or inferior (-) to the comparables.
Common Mistakes to Avoid
- -Subtracting positive adjustments instead of adding them
- -Forgetting to apply adjustments after calculating base value
- -Confusing when to use positive versus negative adjustments
Concept Deep Dive
Analysis
This question tests the fundamental calculation methodology of the sales comparison approach, which is one of the three primary valuation approaches in real estate appraisal. The sales comparison approach involves analyzing recent sales of comparable properties and making adjustments for differences between the subject property and the comparables. The process requires calculating a base value using market data (price per square foot from comparables) and then applying positive or negative adjustments to account for superior or inferior features of the subject property. Understanding when to add versus subtract adjustments is crucial, as positive adjustments indicate the subject property is superior to the comparables in some way.
Background Knowledge
The sales comparison approach requires appraisers to analyze recent sales of similar properties and adjust for differences in features, condition, location, and market conditions. Adjustments can be positive (when subject is superior) or negative (when subject is inferior) and are typically expressed as dollar amounts or percentages.
Real-World Application
In practice, appraisers might find that comparable sales average $150/sq ft, but the subject property has a newer roof, updated kitchen, or better location than the comparables. These superior features warrant positive adjustments to reflect the subject's higher value compared to the average of the sales used.
More Report Writing Questions
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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)?
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