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) An initial $20,000 indication that needs verification before use
A controlled $20,000 price difference supplies an initial feature-contribution indication for that pair. Verify the isolation of other influences and test its applicability with additional relevant evidence before generalizing it into an adjustment for the subject.
Why This Is the Correct Answer
Option A is correct because paired sales analysis isolates a single characteristic's effect, and this pair suggests about $20,000 for the fireplace. One pair is an initial indication, not a proven rate. The appraiser should verify that other influences are truly controlled and check the figure with additional relevant evidence before applying it to the subject.
Why the Other Options Are Wrong
Option B: A $20,000 adjustment to apply to homes in other markets as well
Option B, a $20,000 adjustment to apply to homes in other markets as well, is wrong because adjustments must reflect the reaction of the relevant market. A figure from one pair in one market does not carry over to other markets without separate support.
Option C: A replacement-cost estimate, independent of any market evidence at all
Option C, a replacement-cost estimate independent of market evidence, is wrong because the $20,000 came from two market sales, not from cost. Paired sales analysis is a market technique, and a cost figure is a different measure.
Option D: Proof that no other sales in the analysis need to be verified
Option D, proof that no other sales need to be verified, is wrong because one pair does not prove anything about other sales. Every sale used still needs verification, and the single pair itself needs testing.
One pair is a clue
A single paired sale is a clue, not a conclusion; more pairs turn the clue into support.
How to use: Use this when an answer treats one paired sale as a final, universal adjustment.
Exam Tip
Prefer answers that describe paired-sale results as indications to verify and test. Be wary of choices that extend one pair's result to other markets.
Common Mistakes to Avoid
- -Treating one paired sale as a proven adjustment
- -Applying a local paired-sale result to a different market
- -Confusing a market-derived difference with a cost estimate
Concept Deep Dive
Analysis
This question tests how to interpret a single paired sale. The $20,000 price difference between two nearly identical sales gives a starting indication of the fireplace's contribution. Before using it as an adjustment, the appraiser should confirm that no other influence explains the difference and test it against more market evidence.
Background Knowledge
Paired sales analysis compares nearly identical properties to estimate a single characteristic's effect on value. Its reliability depends on how well other differences are controlled and on whether several pairs give consistent results. Adjustments should reflect the market's reaction to the difference between properties.
Real-World Application
An appraiser finds two similar homes on the same street that sold a month apart for $400,000 and $420,000, with the higher one having a fireplace. Before using $20,000, the appraiser confirms both sales were arm's length with similar condition and looks for other pairs in the market. Two more pairs show similar differences, giving support for the adjustment.
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Which two depreciation categories may each be classified as curable or incurable by comparing the cost to remedy a deficiency with the value gained?
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Which highest-and-best-use criterion addresses whether a proposed use is allowed by zoning and applicable legal restrictions?
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