In paired sales analysis, if Property A sold for $400,000 and Property B sold for $380,000, and the only difference is that Property A has a garage while Property B does not, what is the indicated value of a garage?
Correct Answer
A) $20,000
Why this is correct: Paired sales analysis directly extracts the value of a feature by comparing two otherwise similar sales. The price difference equals the feature's value: $400,000 (with garage) minus $380,000 (without garage) = $20,000. Why the other choices are wrong: '$15,000' is a different, incorrect difference. '$25,000' might result from comparing $400,000 to $375,000. '$30,000' could come from comparing $410,000 to $380,000. Exam tip: In paired sales, the feature value is simply the sale price difference when all else is equal.
Why This Is the Correct Answer
Option B ($20,000) is correct because paired sales analysis uses simple subtraction to isolate feature value. When Property A with a garage sold for $400,000 and Property B without a garage sold for $380,000, the market has demonstrated that buyers are willing to pay exactly $20,000 more for the garage feature. This direct mathematical relationship ($400,000 - $380,000 = $20,000) represents the garage's contributory value as evidenced by actual market transactions. The calculation assumes all other property characteristics are identical, making the price difference attributable solely to the garage.
Why the Other Options Are Wrong
PAIR Subtraction Method
PAIR = Property A minus Property B = Isolated Result. Remember: 'When properties PAIR up perfectly except for one feature, SUBTRACT to find the feature's value.'
How to use: When you see a paired sales question, immediately identify the two sale prices and the single differing feature, then subtract the lower price from the higher price to find the feature's contributory value
Exam Tip
Always double-check your subtraction and ensure you're subtracting the property WITHOUT the feature from the property WITH the feature to get a positive contributory value
Common Mistakes to Avoid
- -Subtracting in the wrong direction (higher price minus lower price)
- -Failing to verify that properties are truly comparable except for one feature
- -Using paired sales from different time periods without market condition adjustments
Concept Deep Dive
Analysis
Paired sales analysis is a fundamental technique in real estate appraisal that isolates the contributory value of specific property features by comparing two otherwise identical properties that differ in only one characteristic. This method relies on the principle of substitution, where the difference in sale prices directly reflects the market's valuation of the differing feature. The analysis requires that the properties be truly comparable in all other aspects including location, size, condition, age, and amenities except for the single feature being analyzed. This technique is particularly valuable for determining adjustment amounts in the sales comparison approach and for understanding how specific features contribute to overall property value.
Background Knowledge
Paired sales analysis is based on the economic principle of substitution, which states that a rational buyer will not pay more for a property than the cost of acquiring an equally desirable substitute. This technique requires finding truly comparable sales that differ in only one significant feature, making it possible to isolate that feature's market value through direct comparison.
Real-World Application
Appraisers use paired sales analysis daily to develop adjustment grids for the sales comparison approach, determining how much to adjust comparable sales for differences in features like pools, fireplaces, upgraded kitchens, or additional bathrooms when appraising subject properties
More Sales Comparison Questions
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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?
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In the cost approach, economic obsolescence is characterized as:
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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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