In a paired sales analysis, Property A sold for $325,000 with a two-car garage, and Property B sold for $310,000 without a garage. All other features are similar. What is the indicated adjustment for a garage?
Correct Answer
A) $15,000
The difference between the two sales prices indicates the value of the garage feature. $325,000 - $310,000 = $15,000 adjustment for the garage.
Why This Is the Correct Answer
Option A ($15,000) correctly applies the paired sales analysis methodology by calculating the direct difference between the two sale prices. Since Property A (with garage) sold for $325,000 and Property B (without garage) sold for $310,000, the market-indicated value of the garage feature is exactly $15,000. This represents what buyers were actually willing to pay for the garage amenity in real market transactions. The calculation is straightforward: $325,000 - $310,000 = $15,000, which becomes the adjustment amount to apply when comparing properties with and without garages.
Why the Other Options Are Wrong
Option B: $310,000
Option B ($310,000) represents the total sale price of Property B without the garage, not the adjustment amount for the garage feature itself. This confuses the base property value with the incremental value contribution of the specific amenity being analyzed.
Option C: $325,000
Option C ($325,000) represents the total sale price of Property A with the garage, not the adjustment amount for the garage feature. This mistake occurs when someone confuses the total property value with the incremental contribution of a single feature.
Option D: $7,500
Option D ($7,500) appears to be half of the correct adjustment amount, possibly resulting from incorrectly dividing the price difference by two. This error might stem from misunderstanding that the full difference represents the feature's value, not requiring any mathematical manipulation beyond simple subtraction.
PAIR Subtraction Method
PAIR: Property A minus Property B = Incremental Rent (value). Remember 'PAIR and SUBTRACT' - when you have a pair of similar properties, subtract the lower price from the higher price to find the feature's value.
How to use: When you see a paired sales question, immediately identify which property has the extra feature, then subtract: (Price with feature) - (Price without feature) = Feature adjustment value.
Exam Tip
Always double-check that you're subtracting in the correct direction (higher price minus lower price) and that your answer represents the adjustment amount, not one of the original sale prices.
Common Mistakes to Avoid
- -Using one of the sale prices instead of calculating the difference
- -Subtracting in the wrong direction (smaller from larger)
- -Dividing the difference by two thinking it needs to be 'split'
Concept Deep Dive
Analysis
Paired sales analysis is a fundamental technique in real estate appraisal that isolates the value contribution of specific property features by comparing two similar properties that differ in only one characteristic. This method relies on the principle that the difference in sale prices between two otherwise identical properties can be attributed to the differing feature. The technique is most effective when the properties are truly comparable in all aspects except the feature being analyzed, and when the sales occurred within a reasonable time frame. This approach provides market-derived adjustments that reflect actual buyer behavior and preferences rather than cost-based estimates.
Background Knowledge
Paired sales analysis requires understanding that market value adjustments should be based on actual market evidence rather than cost estimates or arbitrary percentages. The technique assumes that buyers make rational decisions and that price differences reflect the relative value they place on specific property features.
Real-World Application
Appraisers use paired sales analysis daily to develop adjustment grids for features like pools, fireplaces, upgraded kitchens, or additional bedrooms. These market-derived adjustments are more credible than cost-based estimates and are preferred by lenders and review appraisers.
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