In paired sales analysis, two similar properties sold for $425,000 and $445,000. The only significant difference is that the higher-priced property has a swimming pool. What is the indicated adjustment for a swimming pool?
Correct Answer
A) $20,000
Why this is correct: Paired sales analysis directly measures market value for a feature by comparing two otherwise similar sales. The $20,000 difference ($445,000 - $425,000) is the indicated adjustment for the swimming pool. Why the other choices are wrong: "$15,000", "$10,000", and "$25,000" are incorrect because they do not equal the actual price difference between the two comparable properties. No other math or rounding is involved. Exam tip: In paired sales, the adjustment is simply the price difference when one property has the feature and the other does not.
Why This Is the Correct Answer
Option C ($20,000) is correct because paired sales analysis involves a straightforward mathematical calculation of the difference between the two sale prices. Since the properties are described as similar in all respects except for the swimming pool, the $20,000 difference ($445,000 - $425,000) directly represents the market's valuation of that amenity. This calculation assumes that all other factors affecting value are held constant, which is the fundamental premise of paired sales analysis.
Why the Other Options Are Wrong
Option B: $15,000
Option B ($15,000) is incorrect because it does not correspond to the actual mathematical difference between the sale prices and appears to be an arbitrary figure not supported by the data.
Option C: $10,000
Option C ($10,000) is incorrect because it represents only half of the actual price difference between the two properties, suggesting an incomplete or miscalculated analysis.
Option D: $25,000
Option D ($25,000) is incorrect because it exceeds the actual price difference between the properties by $5,000, indicating either a calculation error or the inclusion of additional factors not present in this analysis.
Simple Subtraction Rule
PSA = Price Subtraction Analysis. In paired sales, always subtract the lower price from the higher price to find the feature value: Higher Price - Lower Price = Feature Value.
How to use: When you see a paired sales question, immediately identify the two prices, determine which property has the additional feature, and subtract the price of the property without the feature from the price of the property with the feature.
Exam Tip
Always double-check your subtraction and make sure you're subtracting in the correct direction (higher price minus lower price) to get a positive adjustment value.
Common Mistakes to Avoid
- -Subtracting in the wrong direction (lower price minus higher price)
- -Assuming the adjustment applies universally without considering market area differences
- -Failing to verify that the properties are truly comparable except for the single differing feature
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 otherwise identical properties that differ in only one significant aspect. This method relies on the principle that market participants make rational decisions and that the price difference between two similar properties reflects the market's valuation of the differing feature. The technique requires careful selection of truly comparable properties where all variables except one are held constant, making it possible to extract the pure market value of individual property characteristics. This approach is particularly valuable for determining adjustment amounts in the sales comparison approach to valuation.
Background Knowledge
Paired sales analysis requires understanding that market value is determined by buyer and seller behavior in actual transactions, and that systematic comparison of similar properties can reveal the contributory value of specific features. Appraisers must ensure that the properties being compared are truly similar except for the feature being analyzed, and that the sales occurred under similar market conditions.
Real-World Application
Appraisers regularly use paired sales analysis to develop adjustment grids for the sales comparison approach, helping them quantify the value differences for features like pools, garages, additional bedrooms, or lot size variations when appraising properties for mortgage lending or other purposes.
More Sales Comparison Questions
A property generates $85,000 in Net Operating Income and sells for $1,062,500. What is the overall capitalization rate?
A property has potential gross income of $180,000, vacancy and collection loss of $15,000, and operating expenses of $65,000. What is the Net Operating Income?
A comparable sale occurred 8 months ago for $425,000. Market conditions indicate property values have increased 0.5% per month since that time. What is the adjusted sale price?
A property generates $150,000 in potential gross income. Market data indicates a 7% vacancy rate and operating expenses of 35% of effective gross income. If the cap rate is 9.5%, what is the indicated value?
A property sold for $320,000 one year ago. If market conditions have improved by 6% since that sale, what is the time-adjusted sale price for comparison purposes?
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A building's gross rent multiplier (GRM) is 120. If the monthly rent is $2,500, what is the indicated value?
In the cost approach, economic obsolescence is characterized as:
The concept of regression in property values means that:
A commercial property has potential gross income of $120,000, vacancy and collection loss of 8%, and operating expenses of $35,000. Using a cap rate of 9.5%, what is the indicated value?
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