In paired sales analysis, two similar properties sold within one month. Property A sold for $425,000 and has a fireplace. Property B sold for $410,000 and lacks a fireplace. What is the indicated adjustment for a fireplace?
Correct Answer
A) $15,000
The difference in sale prices ($425,000 - $410,000 = $15,000) indicates the market's valuation of the fireplace feature.
Why This Is the Correct Answer
Option A is correct because paired sales analysis directly measures the market's valuation of a specific feature through the price difference between comparable sales. When Property A (with fireplace) sold for $425,000 and Property B (without fireplace) sold for $410,000, the $15,000 difference represents the market-derived adjustment for the fireplace. This dollar amount adjustment can then be applied to other comparable properties in the appraisal process. The calculation is straightforward: $425,000 - $410,000 = $15,000.
Why the Other Options Are Wrong
Option B: $417,500
$417,500 represents the average of the two sale prices, not the adjustment amount. While averaging might be used in other appraisal techniques, it doesn't provide the value contribution of the specific feature being analyzed. The adjustment is the difference between the prices, not their average.
Option C: 3.7%
3.7% represents the percentage difference relative to the lower-priced property ($15,000 ÷ $410,000), but paired sales analysis typically expresses adjustments in dollar amounts rather than percentages. While percentage adjustments can be useful, the question asks for the indicated adjustment, which is conventionally expressed as a dollar figure in paired sales analysis.
Option D: $835,000
$835,000 is the sum of both sale prices, which has no relevance to determining the value contribution of the fireplace feature. Adding the sale prices together provides no meaningful information for adjustment purposes in paired sales analysis.
DIFF = Dollar Indication For Feature
Remember DIFF: the Dollar Indication For a Feature is simply the DIFFerence between the sale prices of the paired properties. Think 'What's the DIFF?' - it's always subtraction in paired sales analysis.
How to use: When you see a paired sales question, immediately think 'DIFF' and subtract the lower sale price from the higher sale price. Don't get distracted by averages, percentages, or sums - the adjustment is always the simple difference.
Exam Tip
In paired sales questions, look for the two sale prices and subtract - ignore any answer choices that show averages, sums, or percentages unless specifically asked for those calculations.
Common Mistakes to Avoid
- -Calculating the average of the two sale prices instead of the difference
- -Converting the difference to a percentage when a dollar adjustment is requested
- -Adding the sale prices together instead of subtracting
Concept Deep Dive
Analysis
Paired sales analysis is a fundamental technique in real estate appraisal used to isolate the value contribution of specific property features. This method compares two similar properties that differ primarily in one characteristic, allowing appraisers to quantify the market's perception of that feature's value. The analysis assumes all other factors are relatively equal between the properties, making the price difference attributable to the varying feature. This technique is essential for developing accurate adjustments in the sales comparison approach to value.
Background Knowledge
Paired sales analysis requires identifying truly comparable properties that differ in only one significant feature, with sales occurring within a reasonable time frame to minimize market condition impacts. The technique assumes that the price difference between the properties is attributable solely to the varying feature, making it crucial that other property characteristics are substantially similar.
Real-World Application
Appraisers use paired sales analysis daily to develop adjustment grids for features like pools, garages, additional bedrooms, or lot size differences. These market-derived adjustments provide credible support for value opinions and are preferred over cost-based or arbitrary adjustments.
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