In a paired sales analysis, two similar properties sold for $425,000 and $445,000. The only significant difference is that the higher-priced property has a fireplace. What adjustment should be made for a fireplace?
Correct Answer
A) +$20,000
Paired sales analysis shows the market's reaction to specific differences. The $20,000 difference ($445,000 - $425,000) indicates the market values a fireplace at $20,000, so this would be a positive adjustment for properties with fireplaces.
Why This Is the Correct Answer
The $20,000 difference between the two sale prices ($445,000 - $425,000 = $20,000) directly represents the market's valuation of the fireplace feature. Since the higher-priced property has the fireplace, this indicates that fireplaces add $20,000 in market value. Therefore, when appraising other properties, a positive $20,000 adjustment should be made for properties that have fireplaces. This is the fundamental principle of paired sales analysis - the price difference equals the feature value.
Why the Other Options Are Wrong
Option B: -$20,000
A negative $20,000 adjustment would incorrectly suggest that fireplaces decrease property value, which contradicts the data showing the property with the fireplace sold for more money. Negative adjustments are made when a feature detracts from value, not when it adds value as demonstrated here.
Option C: +$10,000
The $10,000 adjustment has no basis in the market data presented, as it represents only half of the actual price difference observed between the two properties. Using arbitrary fractions of the actual market difference would undervalue the fireplace feature and lead to inaccurate appraisals.
Option D: No adjustment needed
Making no adjustment ignores clear market evidence that fireplaces have measurable value impact, which would result in inaccurate comparable sales adjustments. The $20,000 price difference is significant and directly attributable to the fireplace feature, requiring proper adjustment in the sales comparison approach.
Price Gap = Feature Value
Remember 'PGFV' - Price Gap equals Feature Value. When you see two similar properties with one difference, the price gap IS the feature value. Higher price property HAS the feature = POSITIVE adjustment.
How to use: When you encounter paired sales questions, immediately identify: 1) Which property sold for more, 2) What feature that property has, 3) The price difference becomes your positive adjustment amount for that feature.
Exam Tip
Always subtract the lower price from the higher price to get your adjustment amount, then apply it as a positive adjustment when the subject property has the superior feature.
Common Mistakes to Avoid
- -Confusing the direction of adjustment (making it negative when it should be positive)
- -Using half or some fraction of the actual price difference without justification
- -Failing to verify that the properties are truly comparable except for the one feature being analyzed
Concept Deep Dive
Analysis
Paired sales analysis is a fundamental appraisal technique that isolates the market value of specific property features by comparing two highly similar properties that differ in only one significant characteristic. This method relies on the principle that the difference in sale prices directly reflects the market's valuation of the differing feature. The analysis assumes all other factors are equal, making it one of the most reliable methods for determining feature adjustments. When properly executed, paired sales analysis provides objective, market-derived data that supports credible property valuations.
Background Knowledge
Paired sales analysis requires finding two properties that are nearly identical except for one feature, with sales occurring under similar market conditions and timeframes. The method assumes that the price difference between the two sales accurately reflects the market's valuation of the differing feature, providing objective data for adjustment calculations in the sales comparison approach.
Real-World Application
Appraisers regularly use paired sales analysis to develop adjustment grids for features like pools, garages, upgraded kitchens, or lot size differences. These market-derived adjustments are more credible than cost-based estimates and are preferred by lenders and review appraisers for their objectivity.
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