In a paired sales analysis, two similar properties sold for $400,000 and $420,000. The only significant difference was that the higher-priced property had a fireplace. This suggests the market value contribution of a fireplace is:
Correct Answer
A) About $20,000, pending further verification
Why this is correct: Paired sales analysis isolates the value of a feature by comparing two similar properties differing mainly in that feature. The $20,000 difference suggests the fireplace's contributory value, but one pair is only an indicator requiring verification with more data. Why the other choices are wrong: "It cannot be determined from this information" is wrong because paired sales provide an indication, though not definitive. "Exactly $20,000, with no need to verify it" is wrong because one data point is insufficient for a precise, final conclusion. "At least $20,000, and possibly rather more" is wrong because it overstates the certainty; the difference could be due to other minor factors. Exam tip: Paired sales give an indication, not a final answer. Always seek corroborating market evidence.
Why This Is the Correct Answer
Option C correctly recognizes that paired sales analysis provides an approximation of market value contribution while acknowledging the limitations of using only one pair of sales. The $20,000 difference gives us a reasonable starting point for the fireplace adjustment, but professional appraisal practice requires verification through additional comparable sales data. This approach aligns with appraisal standards that emphasize the need for multiple data points to support adjustment conclusions and recognize that individual sales may be influenced by factors beyond the single difference being analyzed.
Why the Other Options Are Wrong
The PAIR Rule
P - Provides indication, A - Approximately correct, I - Insufficient alone, R - Requires verification. Remember: One PAIR gives you a starting point, but you need more data to make it stick!
How to use: When you see a paired sales question with only one comparison, immediately think 'PAIR' - this will remind you that while the analysis provides useful information (approximately correct), it's insufficient alone and requires additional verification.
Exam Tip
Look for answer choices that include qualifying language like 'approximately' or 'subject to verification' when dealing with single paired sales comparisons - these often indicate the most professionally sound approach.
Common Mistakes to Avoid
- -Treating a single paired sale as definitive proof of exact market value contribution
- -Ignoring the indication provided by paired sales analysis entirely
- -Failing to recognize the need for additional verification data in professional appraisal practice
Concept Deep Dive
Analysis
Paired sales analysis is a comparative technique used in real estate appraisal to isolate the market value contribution of specific property features by comparing two similar properties that differ primarily in one characteristic. While this method provides valuable insight into how the market responds to particular features, a single pair of sales provides only an indication rather than a definitive measurement. The reliability and accuracy of the adjustment amount increases significantly when multiple paired sales are analyzed to confirm the pattern. Professional appraisal standards require verification through additional market data to establish credible adjustments, as market conditions, timing, and other subtle differences can influence individual sale prices.
Background Knowledge
Paired sales analysis is a fundamental technique in the sales comparison approach where appraisers compare properties that are similar except for one key difference to isolate the market's reaction to specific features. The reliability of this technique increases with the number of paired sales analyzed, and professional standards require verification through multiple data sources before establishing final adjustment amounts.
Real-World Application
In practice, appraisers typically need 3-5 paired sales to confidently establish an adjustment amount for a specific feature. A single paired sale like this fireplace example would be noted and used as supporting data, but the appraiser would seek additional market evidence before finalizing the adjustment in their appraisal report.
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?
A commercial building cost $2,500,000 to construct. The land value is $600,000. If the building has suffered 15% physical deterioration and 8% functional obsolescence, what is the depreciated cost of the improvements?
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:
The concept of regression in property values means that:
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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