In paired sales analysis, two similar properties sold for $385,000 and $365,000. The only significant difference is that one has a fireplace and the other does not. What is the indicated adjustment for a fireplace?
Correct Answer
A) $20,000
Paired sales analysis isolates the value of a single feature by comparing two similar properties that differ only in that feature. The $20,000 difference ($385,000 - $365,000) indicates the market value contribution of the fireplace.
Why This Is the Correct Answer
Option A ($20,000) correctly identifies the positive adjustment value for a fireplace based on the paired sales analysis. Since the property with the fireplace sold for $385,000 and the property without sold for $365,000, the market-derived difference of $20,000 represents the value buyers place on having a fireplace. This positive adjustment would be applied when appraising a property with a fireplace compared to sales without fireplaces, or as a negative adjustment when the subject lacks a fireplace compared to sales that have one.
Why the Other Options Are Wrong
Option B: -$20,000
Option B (-$20,000) represents the incorrect sign for the adjustment. While the magnitude is correct, the negative sign would imply that having a fireplace decreases property value by $20,000, which contradicts the sales data showing the property with the fireplace sold for more money.
Option C: $375,000
Option C ($375,000) appears to be the average of the two sale prices, which is not what paired sales analysis seeks to determine. The goal is to isolate the value contribution of the specific feature (fireplace), not to find a median or average sale price.
Option D: Cannot be determined without more information
Option D is incorrect because paired sales analysis provides sufficient information when two truly comparable properties differ by only one significant feature. The methodology is specifically designed to work with this type of limited but focused data, and additional information would not be necessary to determine the fireplace adjustment.
PAIR Method
P - Properties must be similar; A - Analyze the difference; I - Isolate one feature; R - Result is the adjustment amount
How to use: When you see a paired sales question, remember PAIR: check that the Properties are comparable, Analyze what's different, confirm you're Isolating just one feature, and the price difference is your adjustment Result.
Exam Tip
Always identify which property has the superior feature and ensure your adjustment sign is correct - if the comparable has a feature the subject lacks, you subtract; if the subject has a feature the comparable lacks, you add.
Common Mistakes to Avoid
- -Confusing the sign of the adjustment - forgetting whether to add or subtract based on which property has the superior feature
- -Using properties that differ in multiple significant ways, violating the 'single difference' requirement of paired sales analysis
- -Calculating an average of the sale prices instead of finding the difference between them
Concept Deep Dive
Analysis
Paired sales analysis is a fundamental appraisal technique used to isolate and quantify the market value contribution of specific property features. This method requires finding two properties that are nearly identical except for one distinguishing characteristic, allowing the appraiser to determine how much that single feature adds to or subtracts from property value. The technique is based on the principle of substitution and relies on actual market data rather than subjective estimates. It's particularly valuable because it reflects what buyers actually pay for specific features in the marketplace, making it highly credible evidence for adjustments in the sales comparison approach.
Background Knowledge
Paired sales analysis is one of the most reliable methods for developing adjustments in the sales comparison approach to value. It requires the appraiser to identify sales that are nearly identical except for one feature, then attribute the price difference to that single distinguishing characteristic. This technique provides market-supported evidence for adjustments rather than relying on cost data or subjective estimates.
Real-World Application
Appraisers frequently use paired sales analysis to develop adjustment grids for features like pools, garages, fireplaces, or lot size differences. For example, if appraising a home with a pool, finding two recent sales where one has a pool and one doesn't (but are otherwise similar) provides strong market evidence for the pool's contributory value.
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