In a paired sales analysis, two similar properties sold within a short time period. Property A has a two-car garage and sold for $285,000. Property B has a three-car garage and sold for $298,000. All other features are comparable. What is the indicated adjustment for the additional garage bay?
Correct Answer
A) $13,000
Paired sales analysis isolates the value of a single feature by comparing two similar properties that differ primarily in that feature. The difference in sale prices ($298,000 - $285,000 = $13,000) indicates the market's valuation of the additional garage bay.
Why This Is the Correct Answer
Option A ($13,000) correctly represents the positive adjustment value for an additional garage bay as derived from the paired sales analysis. The calculation is straightforward: Property B with the three-car garage sold for $298,000, while Property A with the two-car garage sold for $285,000, yielding a $13,000 difference. This positive difference indicates that the market values the additional garage bay at $13,000, which becomes the adjustment amount when comparing properties with different garage configurations. The adjustment figure represents the contributory value of the extra garage bay as evidenced by actual market transactions.
Why the Other Options Are Wrong
Option B: -$13,000
Option B (-$13,000) incorrectly applies a negative sign to the adjustment amount, which would suggest that having an additional garage bay decreases property value by $13,000. This contradicts basic real estate principles and market behavior, as additional garage space typically adds value to a property. The negative adjustment would only be appropriate if we were adjusting from a superior property (three-car garage) to an inferior one (two-car garage), but the question asks for the adjustment value of the additional garage bay itself, which is inherently positive.
Option C: $298,000
Option C ($298,000) incorrectly identifies the entire sale price of Property B as the adjustment amount, which fundamentally misunderstands the concept of paired sales analysis. The adjustment amount should represent only the value difference attributable to the specific feature being analyzed (the additional garage bay), not the total value of either property. Using the full sale price as an adjustment would grossly overstate the value contribution of a single garage bay and render the analysis meaningless.
Option D: Cannot be determined
Option D (Cannot be determined) is incorrect because paired sales analysis can indeed determine the adjustment when proper conditions are met, as they are in this scenario. The two properties are described as similar in all other features, sold within a short time period, and differ only in the number of garage bays. These conditions satisfy the requirements for a valid paired sales analysis, making it possible to isolate and quantify the value of the additional garage bay through the price difference between the two sales.
PAIR Method
P - Properties must be similar, A - Analyze the difference, I - Isolate the feature value, R - Result is the adjustment amount. Remember: Higher price minus Lower price = Positive adjustment value.
How to use: When you see a paired sales question, immediately identify which property sold for more, subtract the lower price from the higher price, and that difference represents the positive value of the superior feature.
Exam Tip
Always subtract the lower sale price from the higher sale price to get a positive adjustment amount - this represents the contributory value of the superior feature to the market.
Common Mistakes to Avoid
- -Applying a negative sign when the adjustment should be positive
- -Using the full sale price instead of the price difference
- -Assuming analysis cannot be performed when sufficient data exists
- -Forgetting to verify that properties are truly comparable in other aspects
Concept Deep Dive
Analysis
Paired sales analysis is a fundamental appraisal technique used to isolate and quantify the market value of specific property features by comparing two highly similar properties that differ primarily in one characteristic. This method relies on the principle that the difference in sale prices between two otherwise comparable properties can be attributed to the differing feature, assuming the sales occurred within a reasonable time frame and under similar market conditions. The technique is particularly valuable for developing adjustment factors in the sales comparison approach, as it provides market-derived evidence of how buyers value specific amenities or features. For paired sales analysis to be reliable, the properties must be truly comparable in all other significant aspects, and the sales must reflect arm's length transactions in the same market area.
Background Knowledge
Paired sales analysis requires understanding of the sales comparison approach to value, where adjustments are made to comparable sales to account for differences between the subject property and the comparables. The technique assumes that market participants make rational decisions and that price differences between similar properties reflect the value of distinguishing features.
Real-World Application
Appraisers regularly use paired sales analysis to develop adjustment grids for features like garage bays, swimming pools, fireplaces, or lot size differences. These market-derived adjustments are then applied to comparable sales when appraising the subject property, ensuring that value opinions are supported by actual market evidence rather than arbitrary estimates.
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