Comparable 2, a single-family home on the ridge of a tract with a valley view, sold for $410,000; the subject is an otherwise similar interior home with no view. Leases in the tract show ridge homes rent for $2,475 per month and interior homes for $2,300. Rented homes in the tract sell at a monthly gross rent multiplier of 160. Current listings of ridge homes ask about $25,000 more than interior homes, and the builder charged an $18,000 lot premium for ridge lots when the tract opened in 2009. What is Comparable 2's price after the view adjustment?
Correct Answer
A) $382,000
The view's rent premium is $2,475 − $2,300 = $175 per month, and $175 × 160 = $28,000. Comparable 2 is superior, so $410,000 − $28,000 = $382,000. Asking-price gaps in listings and a builder's lot premium from 2009 do not show what buyers pay today, and adding the premium moves the superior comparable the wrong way.
Why This Is the Correct Answer
Option A is correct because the ridge homes rent for $175 more per month ($2,475 − $2,300), and $175 × 160 = $28,000. Comparable 2 is superior to the subject, so its price is reduced: $410,000 − $28,000 = $382,000.
Why the Other Options Are Wrong
Option B: $385,000
Option B, $385,000, deducts the $25,000 asking-price gap from current listings. Asking prices are not completed transactions; the rent evidence capitalized at 160 supports $28,000 and a price of $382,000.
Option C: $392,000
Option C, $392,000, deducts the builder's $18,000 lot premium from 2009. That was a pricing decision when the tract opened, not today's market reaction; the current rent premium supports a $28,000 deduction.
Option D: $438,000
Option D, $438,000, adds the $28,000 view premium. Comparable 2 has the view the subject lacks, so the adjustment lowers its price to $382,000.
Better comparable, subtract
Adjust the comparable toward the subject: if the comparable has something the subject lacks, take its value away.
How to use: Use this to set the sign after you have measured a feature's value.
Exam Tip
Old builder premiums and listing asking prices are tempting numbers; prefer current market evidence such as rents or closed sales.
Common Mistakes to Avoid
- -Using an asking-price gap from listings as the adjustment
- -Relying on a builder's original lot premium
- -Adding the adjustment to a superior comparable
Concept Deep Dive
Analysis
The question applies the income capitalization method to a location feature rather than a building component. A permanent rent premium for the view is capitalized at the market multiplier, and the result is subtracted because the comparable has the view and the subject does not.
Background Knowledge
A rent difference can be capitalized for any lasting difference between properties, including view or location, not only for physical items. The rent premium and the multiplier both come from current market data for similar homes.
Real-World Application
In a hillside subdivision with few recent view sales, an appraiser finds that tenants pay a steady premium for homes with city-light views. The appraiser capitalizes that premium with the tract's rent multiplier to support a view adjustment.
More Sales Comparison Questions
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