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
D) Add $10,000 if subject has fireplace, subtract $10,000 if comparable has fireplace
Why this is correct: The $10,000 difference indicates the fireplace's contributory value. When adjusting a comparable to the subject, add $10,000 if the subject has the fireplace (superior), subtract $10,000 if the comparable has it (subject inferior). Why the other choices are wrong: "Always add $10,000 for fireplace presence" ignores whether the subject or comparable has it. "Add $10,000 if comparable has fireplace" adjusts in the wrong direction. "The difference cannot be attributed" contradicts paired sales logic. Exam tip: In adjustments, always think: 'Make the comparable like the subject.' Add if subject is better.
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
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.
More Sales Comparison Questions
A property generates $85,000 in Net Operating Income and sells for $1,062,500. What is the overall capitalization rate?
A property has potential gross income of $180,000, vacancy and collection loss of $15,000, and operating expenses of $65,000. What is the Net Operating Income?
A comparable sale occurred 8 months ago for $425,000. Market conditions indicate property values have increased 0.5% per month since that time. What is the adjusted sale price?
A property generates $150,000 in potential gross income. Market data indicates a 7% vacancy rate and operating expenses of 35% of effective gross income. If the cap rate is 9.5%, what is the indicated value?
A property sold for $320,000 one year ago. If market conditions have improved by 6% since that sale, what is the time-adjusted sale price for comparison purposes?
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A building's gross rent multiplier (GRM) is 120. If the monthly rent is $2,500, what is the indicated value?
In the cost approach, economic obsolescence is characterized as:
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A commercial property has potential gross income of $120,000, vacancy and collection loss of 8%, and operating expenses of $35,000. Using a cap rate of 9.5%, what is the indicated value?
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