In a paired sales analysis, Property A sold for $350,000 with a pool, and Property B sold for $335,000 without a pool. All other features are similar. What is the indicated adjustment for a pool?
Correct Answer
A) $15,000
The difference in sale prices indicates the pool contributes $15,000 to value ($350,000 - $335,000 = $15,000). When adjusting a subject property that has a pool, you would add $15,000 to comparable sales without pools.
Why This Is the Correct Answer
Option A is correct because paired sales analysis calculates the value contribution by finding the simple difference between the two sale prices. Property A with the pool sold for $350,000, while Property B without the pool sold for $335,000, resulting in a $15,000 difference ($350,000 - $335,000 = $15,000). This $15,000 represents the market's indication of the pool's contributory value. When making future adjustments, this amount would be added to comparable sales that lack pools when comparing them to a subject property that has a pool.
Why the Other Options Are Wrong
Option B: $685,000
Option B ($685,000) is incorrect because it appears to be the sum of both sale prices ($350,000 + $335,000 = $685,000), which has no relevance to determining the adjustment amount. Paired sales analysis requires subtraction, not addition, to isolate the value difference attributable to the specific feature.
Option C: -$15,000
Option C (-$15,000) is incorrect because it represents the adjustment from the wrong perspective. While the mathematical difference is correct in absolute terms, the negative sign would indicate that having a pool decreases value, which contradicts the data showing the property with the pool sold for more money.
Option D: 4.3%
Option D (4.3%) is incorrect because it expresses the adjustment as a percentage rather than a dollar amount, and paired sales analysis typically yields dollar adjustments. Additionally, this percentage (approximately $15,000 ÷ $350,000) doesn't provide the direct dollar adjustment needed for practical application in the sales comparison approach.
PAIR Method
P - Pick two similar properties, A - Analyze the single difference, I - Isolate by subtraction (Higher price - Lower price), R - Result is the adjustment amount
How to use: When you see a paired sales question, immediately identify the two properties, confirm they differ by only one feature, subtract the lower price from the higher price, and that difference is your adjustment for the feature present in the higher-priced property.
Exam Tip
Always subtract the lower sale price from the higher sale price, and remember that the resulting positive number represents the value contribution of the feature present in the higher-priced property.
Common Mistakes to Avoid
- -Subtracting in the wrong direction (lower price minus higher price)
- -Expressing the answer as a percentage instead of a dollar amount
- -Adding the prices together instead of finding the difference
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 by comparing two similar properties that differ in only one characteristic. The method relies on the principle that the difference in sale prices between two otherwise identical properties can be attributed to the single differing feature. This technique is essential for developing accurate adjustments in the sales comparison approach, allowing appraisers to quantify how specific amenities, conditions, or characteristics affect property value. The analysis assumes all other factors are held constant, making it a controlled comparison that yields reliable adjustment data.
Background Knowledge
Paired sales analysis requires understanding that property values are influenced by individual features and that these influences can be quantified by comparing similar properties with and without specific characteristics. The technique assumes the market is efficient enough that price differences reflect the true contributory value of features, and that all other variables between the compared properties are essentially equal.
Real-World Application
Appraisers use paired sales analysis regularly to develop adjustment grids for features like pools, garages, fireplaces, or lot size differences. These adjustments are then applied when comparing dissimilar properties in the sales comparison approach, ensuring accurate valuation by accounting for feature differences between the subject property and comparable sales.
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