In the sales comparison approach, a comparable property sold for $350,000. The comparable has a two-car garage while the subject has a three-car garage. If a garage bay is worth $8,000, what adjustment should be made?
Correct Answer
A) Add $8,000 to the comparable sale price
Since the comparable is inferior to the subject (two-car vs. three-car garage), we must add $8,000 to the comparable sale price to make it equivalent to the subject property.
Why This Is the Correct Answer
Option A is correct because the comparable property has only a two-car garage while the subject has a three-car garage, making the comparable inferior by one garage bay. Since the comparable is missing one garage bay compared to the subject, we must add the value of that missing bay ($8,000) to the comparable's sale price. This adjustment makes the comparable equivalent to the subject property for comparison purposes.
Why the Other Options Are Wrong
Option B: Subtract $8,000 from the comparable sale price
Subtracting $8,000 would be incorrect because it assumes the comparable is superior to the subject, which is the opposite of the actual situation. This would make the adjusted comparable even more inferior to the subject.
Option C: Add $16,000 to the comparable sale price
Adding $16,000 incorrectly assumes there is a two-garage-bay difference between the properties, when there is only a one-bay difference (three-car vs. two-car garage).
Option D: Subtract $16,000 from the comparable sale price
This option makes two errors: it uses the wrong direction (subtract instead of add) and the wrong amount ($16,000 instead of $8,000), completely misunderstanding both the relationship between properties and the magnitude of difference.
The COMPASS Rule
COMPASS: Comparable Minus Subject = Positive Adjustment, Subject Minus Comparable = Subtract. If the comparable is missing something the subject has (C-S is negative), ADD to make it positive. If the comparable has more than the subject (C-S is positive), SUBTRACT.
How to use: When you see an adjustment question, immediately identify what the comparable has versus what the subject has. Use COMPASS: if comparable < subject, ADD the difference; if comparable > subject, SUBTRACT the difference.
Exam Tip
Always identify which property (comparable or subject) is superior first, then remember that adjustments are ALWAYS made to the comparable to make it equal to the subject.
Common Mistakes to Avoid
- -Confusing the direction of adjustment by adding when you should subtract or vice versa
- -Making adjustments to the subject property instead of the comparable
- -Calculating the wrong magnitude of difference between features
Concept Deep Dive
Analysis
This question tests the fundamental principle of adjustments in the sales comparison approach, specifically the direction of adjustments when comparing properties with different features. The key concept is that adjustments are always made TO the comparable property to make it equivalent to the subject property. When a comparable property is inferior to the subject (has fewer or lesser features), we must add value to compensate for that deficiency. Conversely, when a comparable is superior to the subject, we subtract value to account for the excess feature.
Background Knowledge
In the sales comparison approach, adjustments are made to comparable properties to account for differences between them and the subject property. The goal is to estimate what the comparable would have sold for if it had the same characteristics as the subject property.
Real-World Application
In practice, appraisers constantly make these adjustments when comparing sold properties to the subject. For example, if comparing homes where one has a pool and another doesn't, or one has been recently renovated while another needs updates, the appraiser must quantify these differences and adjust the comparable sales accordingly.
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