In paired sales analysis, an appraiser finds two similar properties where one has a pool and sold for $285,000, while the other without a pool sold for $270,000. What is the indicated adjustment for a pool?
Correct Answer
A) $15,000
The difference in sale prices ($285,000 - $270,000 = $15,000) indicates the market's reaction to the pool. This suggests a positive adjustment of $15,000 for a pool.
Why This Is the Correct Answer
The correct answer is A because paired sales analysis calculates the adjustment by taking the direct difference between the sale prices of the two similar properties. Since the property with the pool sold for $285,000 and the one without sold for $270,000, the market indicates that a pool adds $15,000 in value ($285,000 - $270,000 = $15,000). This positive adjustment represents the contributory value that the market assigns to having a pool.
Why the Other Options Are Wrong
Option B: -$15,000
Option B is incorrect because -$15,000 would indicate that having a pool decreases property value, which contradicts the data showing the property with the pool sold for more money. The negative sign would be used if the pool actually detracted from value, but the higher sale price proves the opposite.
Option C: $270,000
Option C is wrong because $270,000 is simply the sale price of the property without the pool, not the adjustment amount. The adjustment is the difference between the prices, not one of the actual sale prices themselves.
Option D: Cannot be determined from this information
Option D is incorrect because paired sales analysis can determine the adjustment when we have two truly comparable properties differing by only one feature. The information provided is sufficient to calculate the pool's contributory value, assuming the properties are otherwise similar.
Pool Plus Price Difference
Remember 'PPD' - Pool Plus Price Difference. When the property WITH the feature costs MORE, the difference is a POSITIVE adjustment for that feature.
How to use: When you see paired sales questions, identify which property has the feature and which sold for more. If the property WITH the feature sold for MORE, subtract the lower price from the higher price for a positive adjustment.
Exam Tip
Always subtract the lower sale price from the higher sale price, then determine if the adjustment is positive or negative based on which property had the feature in question.
Common Mistakes to Avoid
- -Confusing the adjustment amount with the actual sale price of one property
- -Making the adjustment negative when the feature clearly adds value
- -Assuming insufficient data exists when the paired sales method can actually be applied
Concept Deep Dive
Analysis
Paired sales analysis is a fundamental technique in the sales comparison approach where appraisers identify two properties that are nearly identical except for one specific feature or characteristic. The difference in their sale prices directly indicates the market's valuation of that particular feature. This method isolates the contributory value of individual property elements by controlling for other variables. The analysis assumes that all other factors affecting value are essentially equal between the two properties, making the price difference attributable solely to the distinguishing feature.
Background Knowledge
Paired sales analysis requires finding properties that are as similar as possible except for one distinguishing feature, then calculating the difference in their sale prices to determine that feature's market value. This technique is most reliable when the properties are truly comparable in location, size, age, condition, and all other value-influencing factors.
Real-World Application
Appraisers regularly use paired sales analysis to develop adjustment grids for features like pools, garages, fireplaces, or additional bathrooms. These adjustments are then applied when comparing the subject property to comparable sales that differ in these specific features.
More Valuation Principles Questions
Which of the following best describes the bundle of rights theory in real estate?
Market value is best defined as:
The principle of substitution states that:
A comparable sale occurred 8 months ago for $450,000. Market conditions analysis shows property values have increased 0.5% per month. What is the adjusted sale price?
What is the difference between reproduction cost and replacement cost?
People Also Study
Property Description & Analysis
20% of exam
Market Analysis & Highest/Best Use
15% of exam
Appraisal Math & Statistics
15% of exam
USPAP (Ethics & Standards)
15% of exam
Report Writing & Compliance
10% of exam