A verified otherwise-comparable market pair isolates an outdated-layout penalty. Which evidence directly measures that penalty?
Correct Answer
B) The supported price difference due to the layout.
A controlled market pair can measure the market-recognized layout penalty when other differences are adequately addressed. Cure cost may also inform analysis if applicable; the method is not universally mandated. Historical partition cost or an arbitrary percentage does not establish current loss.
Why This Is the Correct Answer
Option B is correct because paired sales analysis compares nearly identical properties to determine a single characteristic's effect on value. When other differences are adequately addressed, the supported adjusted price difference attributable to the layout measures the market-recognized penalty directly.
Why the Other Options Are Wrong
Option A: The full renovation bill, apart from any benefit.
Option A is wrong because the full renovation bill, considered apart from any benefit, is a cost figure rather than a measure of how buyers price the layout. Cost to cure may inform the analysis but does not by itself measure the market penalty that the pair isolates.
Option C: The untrended original cost of the old partitions.
Option C is wrong because the untrended original cost of the old partitions is a historical cost. It does not establish the current loss in value caused by the outdated layout.
Option D: A standard percentage with no market support.
Option D is wrong because a standard percentage with no market support is arbitrary. It does not measure the penalty that the verified market pair reveals.
Pairs reveal the price gap
When two sales differ in only one feature, the adjusted price gap between them shows what the market pays for that feature.
How to use: Use this idea when a question asks what evidence directly measures a market penalty from a matched pair.
Exam Tip
When the stem describes a verified paired sale, look for the answer that uses the market price difference rather than historical costs or unsupported percentages.
Common Mistakes to Avoid
- -Using the original cost of the outdated components as the loss
- -Applying a rule-of-thumb percentage with no market support
- -Assuming the full renovation cost equals the value penalty
Concept Deep Dive
Analysis
This question tests how a market-derived measure of functional obsolescence works. A verified paired sale that is otherwise comparable isolates the effect of one feature on price. The direct measure is therefore the supported price difference attributable to that feature, not a cost figure or an assumed percentage.
Background Knowledge
Paired sales analysis is a quantitative technique that compares nearly identical properties to isolate the value effect of a single characteristic. It is one way to measure functional obsolescence, alongside other techniques such as cost to cure where applicable. The reliability of the result depends on verifying the sales and accounting for other differences.
Real-World Application
An appraiser finds two recent sales of similar homes on the same street, one with an open updated layout and one with a chopped-up floor plan. After adjusting for a minor size difference, the remaining price gap is used to support the functional obsolescence deduction for the subject's dated layout.
More Cost Approach Questions
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