In paired sales analysis, two similar properties sold for $400,000 and $420,000. The only significant difference is that the higher-priced property has a swimming pool. What adjustment should be made for a pool in future comparisons?
Correct Answer
B) $20,000
In paired sales analysis, the difference in sale prices ($420,000 - $400,000 = $20,000) indicates the market's reaction to the swimming pool, assuming all other factors are truly similar. This $20,000 difference becomes the adjustment amount for pools in future comparisons.
Why This Is the Correct Answer
Option B is correct because paired sales analysis directly measures market reaction to specific property differences through actual sale prices. When two truly comparable properties sell for $400,000 and $420,000, and the only significant difference is the presence of a swimming pool, the $20,000 difference ($420,000 - $400,000) represents the market's valuation of that pool. This difference becomes the appropriate adjustment amount because it reflects what buyers were actually willing to pay for the pool feature. The calculation is straightforward and provides empirical, market-based evidence for future adjustments.
Why the Other Options Are Wrong
Option A: $10,000
$10,000 represents only half of the actual price difference observed in the market, which would undervalue the swimming pool's contribution to property value.
Option C: $25,000
$25,000 exceeds the actual market-derived price difference by $5,000, which would result in over-adjusting for the swimming pool feature in future comparisons.
Option D: Cannot be determined from this information alone
This is incorrect because paired sales analysis provides sufficient information when two truly comparable properties differ by only one significant feature, making the price difference a reliable indicator of that feature's value.
PAIR Method
P - Properties must be similar, A - Analyze the difference, I - Isolate one feature, R - Result equals adjustment amount
How to use: When you see a paired sales question, remember PAIR: ensure the Properties are truly comparable, Analyze what's different, confirm you're Isolating just one feature, and the price difference is your adjustment Result.
Exam Tip
Always subtract the lower sale price from the higher sale price to find the adjustment amount, and verify that only one significant difference exists between the properties.
Common Mistakes to Avoid
- -Assuming properties are comparable when multiple significant differences exist
- -Using the wrong mathematical operation (adding instead of subtracting)
- -Applying adjustments from different market areas or time periods without verification
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 nearly identical properties that differ in only one significant characteristic. The method assumes that all other factors affecting value are held constant, making the price difference attributable solely to the varying feature. This technique is particularly valuable for determining adjustment amounts in the sales comparison approach, as it provides market-derived evidence of how buyers and sellers value specific amenities or characteristics. The reliability of paired sales analysis depends heavily on the similarity of the properties and the timing of the sales, as market conditions should be consistent between transactions.
Background Knowledge
Paired sales analysis requires understanding that property values are influenced by multiple factors, and isolating the impact of individual features requires careful comparison of highly similar properties. The technique assumes that market conditions, location, size, condition, and all other value-influencing factors are essentially identical between the compared properties.
Real-World Application
Appraisers regularly use paired sales analysis to develop adjustment grids for features like pools, garages, fireplaces, or lot size differences, building a database of market-supported adjustments for consistent application across similar properties in their market area.
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