In a paired sales analysis, Property A sold for $300,000 with a two-car garage, and Property B sold for $285,000 without a garage. All other features are similar. What is the indicated value of a two-car garage?
Correct Answer
D) $15,000
Why this is correct: Paired sales analysis isolates the value contribution of a single feature by comparing two otherwise similar sales. The price difference directly indicates the feature's value: $300,000 (with garage) minus $285,000 (without garage) equals $15,000. Why the other choices are wrong: '$292,500' is the average of the two sale prices, not the feature value. '$585,000' is the sum of the two prices, which is irrelevant. '$7,500' is half of the difference, a miscalculation. Exam tip: In paired sales, subtract the sale prices; the difference is the feature's indicated value.
Why This Is the Correct Answer
Option B ($15,000) is correct because paired sales analysis uses simple subtraction to isolate feature value. When Property A (with garage) sold for $300,000 and Property B (without garage) sold for $285,000, the $15,000 difference directly represents the market's valuation of the two-car garage. This straightforward calculation assumes all other property characteristics are truly similar, making the price differential attributable solely to the garage feature.
Why the Other Options Are Wrong
SUBTRACT for Success
SUBTRACT: Similar properties, Uniform conditions, Basic math (subtraction), Take the difference, Result shows feature value, Attribute difference to the varying feature, Calculate by simple subtraction, Trust the market data
How to use: When you see paired sales questions, immediately think 'SUBTRACT' and look for two similar properties with one key difference, then subtract the lower price from the higher price to find the feature value.
Exam Tip
Always identify which property has the feature and which doesn't, then subtract the price of the property WITHOUT the feature from the price of the property WITH the feature to get the feature's value.
Common Mistakes to Avoid
- -Adding the two sale prices instead of subtracting them
- -Subtracting in the wrong direction (higher price minus lower price)
- -Dividing the difference by two thinking it represents a per-unit value
- -Failing to verify that the properties are truly similar except for the one feature
Concept Deep Dive
Analysis
Paired sales analysis is a fundamental technique in real estate appraisal used to isolate the value contribution of specific property features. This method compares two similar properties that differ primarily in one feature, allowing appraisers to quantify the market's perception of that feature's value. The analysis assumes all other factors are equal (ceteris paribus), making the price difference attributable to the single varying feature. This technique is essential for making adjustments in the sales comparison approach and requires careful selection of truly comparable properties.
Background Knowledge
Paired sales analysis requires understanding that market value differences between similar properties can be attributed to specific features when all other variables are controlled. The technique assumes rational market behavior where buyers pay premiums for desirable features, and these premiums can be quantified through careful comparison of sale prices.
Real-World Application
Appraisers regularly use paired sales analysis to develop adjustment grids for the sales comparison approach, determining how much to adjust comparable sales for differences in features like pools, fireplaces, upgraded kitchens, or additional bathrooms when appraising a subject property.
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
Related Tools
Previous Question
An investor pays $100,000 in cash for a property and receives $12,000 in annual cash flow. What is the equity dividend rate?
Next Question
A building has a reproduction cost of $1,200,000. Land value is $300,000 and the total property value is $1,100,000. Using the extraction method, what is the total depreciation?