In paired sales analysis, two similar properties sold for $425,000 and $445,000 respectively. The only significant difference is that the higher-priced property has a fireplace while the other does not. What is the indicated adjustment for a fireplace?
Correct Answer
A) $20,000
In paired sales analysis, the difference in sale prices ($445,000 - $425,000 = $20,000) indicates the market's valuation of the fireplace feature, assuming all other factors are truly comparable.
Why This Is the Correct Answer
Option A ($20,000) is correct because paired sales analysis calculates the adjustment by taking the simple difference between the two sale prices. Since the property with the fireplace sold for $445,000 and the property without the fireplace sold for $425,000, the market-indicated value of the fireplace is $445,000 - $425,000 = $20,000. This positive adjustment represents the additional value that buyers are willing to pay for the fireplace feature. The calculation assumes that all other property characteristics are truly comparable, making the price difference attributable solely to the presence or absence of the fireplace.
Why the Other Options Are Wrong
Option B: -$20,000
Option B (-$20,000) is incorrect because it represents a negative adjustment, which would imply that having a fireplace decreases property value. The negative sign would be used if we were adjusting from a superior property (with fireplace) to an inferior property (without fireplace), but the question asks for the indicated adjustment for a fireplace as a feature, which should be positive since fireplaces typically add value.
Option C: $435,000
Option C ($435,000) is incorrect because it represents the average of the two sale prices rather than the adjustment amount. While $435,000 might be useful as a midpoint reference, it does not answer the question about the specific value contribution of the fireplace feature. The question specifically asks for the adjustment amount, not an average or estimated value.
Option D: Cannot be determined from this information
Option D is incorrect because sufficient information is provided to determine the adjustment. The problem states that the properties are similar and that the fireplace is the only significant difference, which are the exact conditions required for paired sales analysis. When these conditions are met, the price difference directly indicates the market's valuation of the differing feature.
PAIR Method
P - Properties must be similar, A - Adjustment equals the difference, I - Isolate one feature, R - Result shows feature value
How to use: When you see a paired sales question, remember PAIR: check that the Properties are similar except for one feature, calculate the Adjustment as the price difference, confirm you're Isolating one feature only, and the Result gives you the feature's market value.
Exam Tip
Always subtract the lower price from the higher price to get a positive adjustment value for the superior feature, and remember that the adjustment represents what the market pays for that specific feature.
Common Mistakes to Avoid
- -Confusing the adjustment amount with the average of the two sale prices
- -Applying a negative adjustment when the question asks for the value of the superior feature
- -Assuming insufficient information exists when the basic requirements for paired sales analysis are clearly met
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 highly similar properties that differ in only one significant characteristic. This method relies on the principle that the difference in sale prices between two otherwise identical properties can be attributed to the single differing feature. The technique requires that all other factors (location, size, condition, age, etc.) be truly comparable for the analysis to be valid. When properly applied, paired sales analysis provides direct market evidence of how buyers value specific property features.
Background Knowledge
Paired sales analysis requires finding two properties that are as similar as possible except for one key difference, then attributing the price difference to that single varying feature. This technique is most reliable when the sales are recent, the properties are truly comparable in all other respects, and the market conditions were similar for both transactions.
Real-World Application
Appraisers use paired sales analysis regularly to build adjustment grids for the sales comparison approach, helping determine how much to adjust comparable sales for differences like pools, garages, updated kitchens, or lot sizes when appraising a subject property.
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