In paired sales analysis, Property A sold for $285,000 with a pool, and Property B sold for $265,000 without a pool. All other features are similar. What is the indicated adjustment for a pool?
Correct Answer
A) $20,000
The difference in sale prices ($285,000 - $265,000 = $20,000) indicates the market value contribution of the pool. This is a positive adjustment for properties with pools.
Why This Is the Correct Answer
The correct answer is $20,000 because paired sales analysis calculates adjustments by taking the simple difference between sale prices of otherwise identical properties. Property A with the pool sold for $285,000 while Property B without the pool sold for $265,000, yielding a $20,000 difference. This positive dollar amount represents the market-derived value contribution of the pool feature. When applying this adjustment, properties with pools would receive no adjustment, while properties without pools would receive a negative $20,000 adjustment to make them comparable to properties with pools.
Why the Other Options Are Wrong
Option B: -$20,000
Option B is incorrect because -$20,000 represents the wrong perspective of the adjustment. While this would be the adjustment applied to a property without a pool when comparing it to properties with pools, the question asks for the indicated adjustment for a pool itself, which is the positive value contribution of $20,000.
Option C: $275,000
Option C is incorrect because $275,000 is not an adjustment amount but rather would be an average of the two sale prices. Adjustments in paired sales analysis are calculated as differences, not averages, and this figure has no relevance to determining the value contribution of the pool feature.
Option D: 7.5%
Option D is incorrect because 7.5% represents a percentage calculation (20,000/265,000) rather than the dollar adjustment amount. While percentages can be useful for analysis, paired sales adjustments are typically expressed as dollar amounts that can be directly applied to comparable properties in the sales comparison approach.
PAIR Method
P - Pick two similar properties, A - Analyze the difference, I - Isolate the single feature, R - Result is the dollar adjustment (Higher price minus Lower price)
How to use: When you see a paired sales question, immediately identify the two properties, subtract the lower sale price from the higher sale price, and that difference is your adjustment for the feature present in the higher-priced property.
Exam Tip
Always subtract in the same direction: higher sale price minus lower sale price equals the positive adjustment for the superior feature.
Common Mistakes to Avoid
- -Confusing the sign of the adjustment (making it negative when it should be positive)
- -Using percentages instead of dollar amounts for the final adjustment
- -Averaging the sale prices instead of finding the difference
Concept Deep Dive
Analysis
Paired sales analysis is a fundamental technique in real estate appraisal that isolates the value contribution of specific property features by comparing two similar properties that differ in only one characteristic. The method assumes all other factors are equal (ceteris paribus) and that the difference in sale prices directly reflects the market's valuation of the differing feature. This technique is essential for developing accurate adjustments in the sales comparison approach, as it provides empirical market evidence rather than relying on cost or subjective estimates. The resulting adjustment can then be applied to other comparable properties to account for the presence or absence of similar features.
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 technique assumes that the difference in sale prices is attributable solely to the differing feature, making it crucial that all other variables are truly comparable.
Real-World Application
Appraisers use paired sales analysis to develop adjustment grids for features like pools, garages, fireplaces, or lot size differences. These market-derived adjustments are more credible than cost-based estimates and are preferred by lenders and review appraisers because they reflect actual buyer behavior.
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