In a paired sales analysis, two similar properties sold for $385,000 and $395,000. The only significant difference is that the higher-priced property has a fireplace. What adjustment should be made for a fireplace?
Correct Answer
A) Add $10,000 if subject has fireplace, subtract $10,000 if comparable has fireplace
In paired sales analysis, the $10,000 difference indicates the market's reaction to the fireplace. When adjusting comparables to the subject, add value if the subject is superior, subtract if the comparable is superior.
Why This Is the Correct Answer
Option A correctly applies the paired sales adjustment methodology. When the subject property has a fireplace and the comparable doesn't, you add $10,000 to the comparable's sale price to account for this superior feature in the subject. Conversely, when the comparable has a fireplace and the subject doesn't, you subtract $10,000 from the comparable's price because the comparable is superior in this aspect. This approach ensures the comparable is adjusted to match the subject property's characteristics.
Why the Other Options Are Wrong
Option B: Add $10,000 if comparable has fireplace, subtract $10,000 if subject has fireplace
This option reverses the proper adjustment direction. It incorrectly suggests adding value when the comparable is superior and subtracting when the subject is superior, which would distort the analysis by moving away from the subject property's characteristics rather than toward them.
Option C: Always add $10,000 for fireplace presence
This option fails to recognize that adjustments depend on which property (subject or comparable) has the superior feature. Blindly adding $10,000 regardless of which property has the fireplace would result in incorrect valuations in half of all scenarios.
Option D: The difference cannot be attributed to the fireplace alone
This option incorrectly dismisses valid paired sales analysis. When two truly similar properties differ by only one significant feature and show a consistent price difference, this difference can reliably be attributed to that feature, making it valuable market data.
Subject is the Target
Remember 'SIT' - Subject Is Target. All adjustments aim to make the comparable 'SIT' like the subject. If Subject has something better, ADD to comparable. If Comparable has something better, SUBTRACT from comparable.
How to use: When you see paired sales questions, immediately identify which property is the subject and which is the comparable, then ask 'What do I need to do to make the comparable SIT like the subject?' This will guide you to the correct adjustment direction.
Exam Tip
Always identify the subject property first, then determine what adjustments make the comparable more like the subject. Draw arrows showing the adjustment direction if it helps visualize the process.
Common Mistakes to Avoid
- -Confusing the adjustment direction by making the subject like the comparable instead of vice versa
- -Assuming the price difference is always added regardless of which property has the superior feature
- -Failing to verify that the properties are truly comparable except for the one differing feature
Concept Deep Dive
Analysis
Paired sales analysis is a fundamental technique in real estate appraisal that isolates the market value of specific property features by comparing two nearly identical properties that differ in only one significant characteristic. The $10,000 price difference between these two properties represents the market's valuation of the fireplace feature. This analysis provides direct market evidence of how buyers value specific amenities. The key principle is that adjustments must always be made TO the comparable property to make it more like the subject property being appraised.
Background Knowledge
Paired sales analysis requires finding properties that are nearly identical except for one feature, allowing appraisers to isolate the market value of specific characteristics. The fundamental rule is that all adjustments are made TO the comparable property to make it more similar to the subject property being valued.
Real-World Application
Appraisers regularly use paired sales analysis to quantify the value of features like pools, garages, updated kitchens, or lot size differences. This data becomes part of their adjustment grid in the sales comparison approach, providing market-supported evidence for their adjustments rather than relying solely on cost data or subjective estimates.
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