In a market analysis, if a subject property requires a +$5,000 adjustment for a pool and a -$3,000 adjustment for condition compared to a comparable sale of $350,000, what is the indicated value of the subject?
Correct Answer
C) $352,000
Why this is correct: The indicated value of the subject is found by adjusting the comparable's sale price to reflect how it differs from the subject. The rule is: adjust the comparable to the subject. If the subject is superior (needs a feature the comp lacks), you add value to the comp's price. Here, the subject requires a +$5,000 adjustment for a pool (subject is inferior, so add to comp), and a -$3,000 adjustment for condition (subject is superior, so subtract from comp). Net adjustment: +5,000 - 3,000 = +2,000. Indicated value = 350,000 + 2,000 = 352,000. Why the other choices are wrong: $358,000 results from adding both adjustments (350,000 + 5,000 + 3,000). $342,000 results from subtracting both adjustments (350,000 - 5,000 - 3,000). $348,000 results from a net subtraction of 2,000 (350,000 - 2,000), which reverses the direction of the adjustments. Exam tip: Remember 'CIA': Adjust the Comparable to the subject. If the subject is inferior, add to the comp's price.
Why This Is the Correct Answer
Option A ($352,000) correctly applies the adjustment formula: Comparable sale price + positive adjustments - negative adjustments. Starting with the comparable sale of $350,000, we add $5,000 for the pool (subject has a pool, comparable doesn't) and subtract $3,000 for condition (subject is in worse condition than comparable). The calculation is $350,000 + $5,000 - $3,000 = $352,000. This follows the proper methodology where adjustments are made TO the comparable sale to make it more like the subject property.
Why the Other Options Are Wrong
Option A: $358,000
Option A ($358,000) incorrectly treats both adjustments as positive, resulting in $350,000 + $5,000 + $3,000 = $358,000. This error occurs when the appraiser fails to recognize that the negative condition adjustment should subtract value from the comparable sale price.
Option B: $342,000
Option B ($342,000) incorrectly treats both adjustments as negative, resulting in $350,000 - $5,000 - $3,000 = $342,000. This error occurs when the appraiser reverses the logic of adjustments and subtracts both the pool value and condition adjustment from the comparable sale price.
Option D: $348,000
Option D ($348,000) incorrectly reverses the pool adjustment, treating it as negative instead of positive. This would result from calculating $350,000 - $5,000 - $3,000 = $342,000, then adding back $6,000, or simply miscalculating the direction of the pool adjustment.
COMPASS Method
COmparable + Positive Adjustments - Subtractions = Subject value. Remember: Adjustments flow TO the comparable to match the subject. Plus for subject's Advantages, Subtract for Subject's Shortcomings.
How to use: When you see adjustment questions, immediately identify whether each adjustment represents the subject being better (+) or worse (-) than the comparable, then apply COMPASS: start with comparable price, add positive adjustments, subtract negative adjustments.
Exam Tip
Always double-check the direction of adjustments by asking 'Is the subject better or worse than the comparable in this feature?' Write out the calculation step-by-step to avoid sign errors.
Common Mistakes to Avoid
- -Reversing the direction of adjustments (making adjustments TO the subject instead of TO the comparable)
- -Treating all adjustments as positive or all as negative without considering which property is superior
- -Forgetting to net the adjustments before applying them to the comparable sale price
Concept Deep Dive
Analysis
This question tests the fundamental concept of the sales comparison approach in real estate appraisal, specifically how to apply adjustments to comparable sales to determine the indicated value of a subject property. The sales comparison approach requires appraisers to identify differences between the subject property and comparable sales, then make dollar adjustments to account for these differences. Positive adjustments indicate the subject property is superior to the comparable in that feature, while negative adjustments indicate the subject is inferior. The final indicated value is calculated by adding the net adjustments to the comparable sale price.
Background Knowledge
The sales comparison approach requires appraisers to adjust comparable sales to account for differences with the subject property. Adjustments are always made TO the comparable sale to make it equivalent to the subject property - if the subject is superior in a feature, a positive adjustment is added to the comparable's price, and if the subject is inferior, a negative adjustment is subtracted.
Real-World Application
In practice, appraisers use this adjustment process when analyzing recent sales of similar properties to estimate a subject property's market value. For example, if a comparable sold for $400,000 but lacked the subject's updated kitchen worth $15,000, the appraiser would add $15,000 to reach an indicated value of $415,000 for the subject.
More Sales Comparison Questions
A building cost $2,500,000 to construct 8 years ago. Using straight-line depreciation over a 40-year life, what is the current depreciated value?
The following sale prices were recorded: $245,000, $250,000, $250,000, $255,000, $280,000. What is the mode?
A property has a replacement cost of $1,800,000. Physical deterioration is estimated at $200,000, functional obsolescence at $150,000, and external obsolescence at $100,000. What is the depreciated value using the breakdown method?
What is the present value of $150,000 to be received in 5 years, assuming a discount rate of 8%?
A triangular lot has a base of 100 feet and a height of 80 feet. What is the area in square feet?
An irregular lot can be divided into a rectangle (100' × 80') and a triangle (base 60', height 40'). What is the total area in acres?
A property has a net operating income of $85,000 and annual debt service of $68,000. What is the debt coverage ratio?
A warehouse has interior dimensions of 120 feet × 80 feet × 20 feet high. What is the volume in cubic feet?
A property is purchased for $500,000 with a loan of $400,000. What is the loan-to-value ratio?
A property sold for $400,000 with annual gross rent of $40,000. What is the gross rent multiplier?
People Also Study
Real Estate Market
13.6% of exam
Property Description
11.8% of exam
Land or Site Valuation
4.5% of exam
Cost Approach
13.6% of exam
Income Approach
8.2% of exam