In a neighborhood where many homes are rented, an appraiser is valuing a house with central air conditioning. Two similar homes sold recently while rented: one for $360,000 (listed at $370,000) with rent of $2,000 per month, and one for $387,000 (listed at $397,750) with rent of $2,150 per month. Leases of otherwise similar homes show rent of $2,050 per month with central air and $1,975 without. Comparable 2, an otherwise similar sale, has no central air, and a contractor quotes $9,800 to install a system. What adjustment should be made to Comparable 2 for central air?
Correct Answer
C) +$13,500
The sale prices divided by the monthly rents give a monthly gross rent multiplier of 180 ($360,000 / $2,000 and $387,000 / $2,150). The market rent difference for central air is $75 per month, and $75 × 180 = $13,500, added because Comparable 2 lacks a feature the subject has. Using list prices gives a multiplier of 185 and $13,875; the contractor's $9,800 is a cost, not a market reaction; and making no adjustment ignores the rent evidence.
Why This Is the Correct Answer
Option C is correct because both rented sales indicate a monthly multiplier of 180 ($360,000 / $2,000 and $387,000 / $2,150). Leases show central air adds $75 per month, and $75 × 180 = $13,500. Comparable 2 lacks central air that the subject has, so the adjustment is added to its price.
Why the Other Options Are Wrong
Option A: $0
Option A, $0, makes no adjustment because no paired sale isolates central air. Paired sales are not the only market evidence: leases show central air adds $75 per month, and capitalizing that at 180 gives $75 × 180 = $13,500.
Option B: +$9,800
Option B uses the contractor's $9,800 installation quote. That is a cost estimate, not a market-derived adjustment; the rent evidence shows buyers pay $75 × 180 = $13,500 for the feature.
Option D: +$13,875
Option D, $13,875, comes from deriving the multiplier from list prices ($370,000 / $2,000 = 185, then $75 × 185). A multiplier must come from sale prices, which give 180 and an adjustment of $13,500.
Price over rent, then multiply
Sale price divided by rent gives the multiplier; the feature's rent difference times that multiplier gives the adjustment.
How to use: Use this when a question gives rented sales and a rent difference but no ready-made multiplier.
Exam Tip
Build the multiplier from closed sale prices and the rent actually paid, and check whether the comparable is better or worse than the subject before choosing the sign.
Common Mistakes to Avoid
- -Deriving the multiplier from list prices instead of sale prices
- -Using the cost to install a feature as its market adjustment
- -Skipping an adjustment because no paired sale isolates the feature
Concept Deep Dive
Analysis
The question tests the two-step income capitalization adjustment: first extract a monthly gross rent multiplier from rented sales of similar homes, then multiply the market rent difference for the feature by that multiplier. It also tests data selection, because list prices and an installation cost appear in the facts but do not measure what buyers paid for the feature.
Background Knowledge
Capitalizing a rent difference converts the extra monthly rent a feature earns into a lump-sum price difference. For one- to four-unit homes the conversion factor is usually a gross rent multiplier, found by dividing sale prices of rented, similar homes by their rents.
Real-World Application
In a college-town neighborhood with many rented houses, an appraiser finds few paired sales for central air. Leases show a steady monthly rent premium for air-conditioned homes, so the appraiser extracts a multiplier from rented sales and capitalizes the premium into the adjustment.
More Sales Comparison Questions
Supported adjustments are: non-market financing $10,000, GLA $36/sf, garage $3,500 per car, pool/spa $12,500. A comparable identical to the 2,800 sf subject sold for $267,000 with non-market financing. What is its adjusted price?
Using GLA $36/sf and non-market financing $10,000: a 3,100 sf comparable sold for $277,000 with non-market financing; the subject has 2,800 sf. Bath count differences are not adjusted. What is the adjusted price?
Using garage $3,500 per car and pool/spa $12,500: a comparable with a 2-car garage and a pool/spa sold for $268,000. The subject has a 3-car garage and no pool. What is the adjusted price?
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A house is a 4,000 square foot home in an area of 2,000 square foot homes. How must the appraiser treat this over-improvement in the sales comparison grid?
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