In paired sales analysis, two properties sold for $285,000 and $305,000 respectively. The only difference is that the higher-priced property has a fireplace. What is the indicated adjustment for a fireplace?
Correct Answer
B) $20,000
Why this is correct: Paired sales analysis compares two nearly identical properties where the only known difference is one feature. The value contribution of that feature is the price difference. Here, $305,000 (with fireplace) - $285,000 (without fireplace) = $20,000. Why the other choices are wrong: $295,000 is the average price, not the difference. $285,000 is the price of the sale without the feature. $305,000 is the price with the feature. Exam tip: In paired sales, the adjustment is simply the arithmetic difference between the two sale prices.
Why This Is the Correct Answer
Option A ($20,000) correctly represents the mathematical difference between the two sale prices, which directly indicates the market's valuation of the fireplace feature. Since the properties are identical except for the fireplace, the $20,000 price differential ($305,000 - $285,000) can be attributed entirely to the presence of this amenity. This calculation follows the fundamental principle of paired sales analysis where the difference in sale prices equals the value of the distinguishing feature. The result provides a reliable market-derived adjustment figure that can be applied to other comparable properties in the appraisal process.
Why the Other Options Are Wrong
Option A: $295,000
Option A ($295,000) appears to be the average of the two sale prices, which is irrelevant to paired sales analysis. This calculation does not isolate the value contribution of the fireplace and has no meaningful application in this appraisal technique.
Option C: $285,000
Option C ($285,000) represents the total sale price of the property without the fireplace, not the value contribution of the fireplace itself. This confuses the base property value with the incremental value added by the specific feature being analyzed.
Option D: $305,000
Option D ($305,000) represents the total sale price of the property with the fireplace, not the isolated value contribution of the fireplace feature. This fails to recognize that paired sales analysis seeks to identify the incremental value difference, not the total property value.
The Subtraction Solution
Remember 'PAIR-SUBTRACT': In PAIRed sales analysis, you SUBTRACT the lower price from the higher price to find the feature's value. Think of it as 'Higher minus Lower equals the Feature Power.'
How to use: When you see a paired sales question, immediately identify the two prices and subtract the smaller from the larger. The difference is always your answer for the feature's value contribution.
Exam Tip
Always look for the simple subtraction in paired sales questions - don't overthink it. The answer will be the mathematical difference between the two sale prices, not the individual prices themselves or any average.
Common Mistakes to Avoid
- -Selecting one of the individual sale prices instead of calculating the difference
- -Calculating the average of the two prices rather than the difference
- -Forgetting that paired sales analysis isolates the value of ONE specific feature only
Concept Deep Dive
Analysis
Paired sales analysis is a fundamental appraisal technique used to isolate and quantify the value contribution of specific property features. This method requires finding two properties that are nearly identical except for one distinguishing feature, allowing the appraiser to determine that feature's market value through direct comparison. The technique is based on the 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. In this case, the fireplace is the only variable between two otherwise comparable sales, making it possible to calculate its precise value contribution. This analysis forms the basis for adjustments made in the sales comparison approach to valuation.
Background Knowledge
Paired sales analysis requires finding truly comparable properties that differ in only one significant feature, which can be challenging in practice due to the unique nature of real estate. The technique assumes that all other factors affecting value (location, size, condition, age, etc.) are essentially equal between the compared properties. This method is most reliable when the sales occurred within a similar time frame and market conditions.
Real-World Application
Appraisers use paired sales analysis to build comprehensive adjustment grids for the sales comparison approach. For example, if multiple paired sales show fireplaces add $15,000-$25,000 in value, an appraiser might use $20,000 as a reliable adjustment when comparing properties with and without fireplaces in their final valuation.
More Sales Comparison Questions
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