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
Why this is correct: The calculation follows the sales comparison approach. First, calculate the base value from the comparables: Subject size (2,200 sq ft) times the average price per square foot (150 dollars/sq ft) equals 330,000 dollars. Then, add the net positive adjustments of 8,000 dollars to this base value. 330,000 dollars + 8,000 dollars = 338,000 dollars. Why the other choices are wrong: 330,000 dollars is the base value before adding adjustments. 322,000 dollars would result from subtracting the adjustments. 346,000 dollars is not supported by the given numbers. Exam tip: In sales comparison, start with the comparable-derived base value, then apply your net adjustments (add positives, subtract negatives) to get the subject's indicated value.
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: $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 B: $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 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 Sales Comparison Questions
An appraiser is analyzing three comparable sales with the following data: Sale 1: $350,000 with +$10,000 adjustments; Sale 2: $340,000 with -$5,000 adjustments; Sale 3: $360,000 with -$15,000 adjustments. What are the adjusted sale prices?
A lender orders an appraisal for a $300,000 residential loan. After receiving the appraisal, the loan officer contacts the appraiser requesting that certain language be changed to better support the loan approval. This scenario represents a violation of:
How often must appraisers complete continuing education to maintain their license or certification?
Under FIRREA, which federal agency was given the authority to set minimum standards for real estate appraisers performing appraisals in federally related transactions?
How often must licensed and certified appraisers complete continuing education to maintain their credentials according to AQB requirements?
FIRREA was enacted primarily in response to which financial crisis?
In a narrative appraisal report, which section would typically contain the appraiser's analysis of highest and best use?
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Under the Dodd-Frank Act, which entity is responsible for establishing appraisal standards for federally related transactions?
In the URAR form, what does the appraiser indicate in the 'Subject' column for site size?
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