In a paired sales analysis, two similar properties differ only in that one has a garage and sold for $285,000, while the other without a garage sold for $270,000. What is the indicated adjustment for a 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 properties that differ only by that feature. The adjustment is the simple difference in their sale prices. Here, the garage is the only difference, so $285,000 (with garage) - $270,000 (without garage) = $15,000. Why the other choices are wrong: "$270,000" is the sale price of the property without the garage, not the adjustment amount. "$555,000" is the sum of both sale prices, which is irrelevant. "$285,000" is the sale price of the property with the garage, not the adjustment. Exam tip: In paired sales, the adjustment is always the difference (subtraction). Identify the superior feature; its property typically sells for more, and the difference is the value of that feature.
Why This Is the Correct Answer
Option A ($15,000) correctly represents the market-derived value of the garage feature through direct comparison. The calculation is straightforward: the property with the garage sold for $285,000 while the identical property without the garage sold for $270,000, yielding a $15,000 difference. This difference represents what buyers in the market are willing to pay for the garage feature, making it the appropriate adjustment amount. This is the fundamental principle of paired sales analysis - isolating the value contribution of a single feature through direct market evidence.
Why the Other Options Are Wrong
Option A: $270,000
Option A ($270,000) represents the total sale price of the property without the garage, not the adjustment amount. This confuses the base property value with the feature adjustment, which is a fundamental misunderstanding of paired sales analysis. The adjustment should only reflect the incremental value difference, not the entire property value.
Option B: $555,000
Option B ($555,000) appears to be the sum of both sale prices ($285,000 + $270,000), which has no relevance to determining a feature adjustment. This represents a fundamental misunderstanding of the paired sales methodology and mathematical error. Adding the two sale prices together provides no meaningful appraisal information and would result in an absurdly high garage adjustment.
Option C: $285,000
Option C ($285,000) represents the total sale price of the property with the garage, not the garage adjustment value. This demonstrates confusion between the total property value and the isolated feature value that paired sales analysis is designed to extract. Using the total sale price as an adjustment would grossly overstate the garage's contribution to value.
The Subtraction Solution
Remember 'SUBTRACT for SINGLE feature': When you have two similar properties differing by one feature, SUBTRACT the lower price from the higher price to find the feature's value. The acronym 'DIFF' helps: Determine similar properties, Identify the single difference, Find the price gap, Final answer is the subtraction result.
How to use: When you see a paired sales question, immediately identify which property has the additional feature, then subtract the price of the property without the feature from the price of the property with the feature. The result is always your adjustment amount.
Exam Tip
Always double-check that you're subtracting in the correct direction - higher sale price minus lower sale price - and that your answer represents only the feature difference, not a total property value.
Common Mistakes to Avoid
- -Using total sale prices instead of the difference between them
- -Adding the two sale prices together instead of subtracting
- -Confusing which property should be subtracted from which, resulting in negative adjustments when positive ones are needed
Concept Deep Dive
Analysis
Paired sales analysis is a fundamental appraisal technique used to isolate and quantify the value contribution of specific property features. This method requires finding two properties that are nearly identical except for one distinguishing characteristic, allowing the appraiser to determine the market's perception of that feature's value. The analysis assumes that the difference in sale prices between the two properties can be directly attributed to the single differing feature, provided all other variables are controlled. This technique is essential for developing accurate adjustments in the sales comparison approach and requires careful selection of truly comparable properties.
Background Knowledge
Paired sales analysis is a market-based technique used in the sales comparison approach to quantify adjustments for property differences. The method requires identifying two properties that are substantially similar except for one feature, allowing the appraiser to isolate that feature's market value through direct comparison of sale prices.
Real-World Application
Appraisers regularly use paired sales analysis to develop adjustment grids for features like pools, fireplaces, upgraded kitchens, or additional bathrooms. These market-derived adjustments are then applied to comparable sales when appraising a subject property, ensuring that adjustments reflect actual market behavior rather than cost or subjective estimates.
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