In the sales comparison approach, when a comparable property has a feature that is superior to the subject property, the appraiser should:
Correct Answer
B) Subtract the adjustment amount from the comparable's sale price
When a comparable is superior to the subject, its sale price must be adjusted downward (subtraction) to reflect what it would have sold for if it were similar to the subject property.
Why This Is the Correct Answer
Option B is correct because when a comparable property is superior to the subject, its sale price includes value for those superior features. To make a valid comparison, we must remove that extra value by subtracting the adjustment amount from the comparable's sale price. This adjustment estimates what the comparable would have sold for if it were similar to the subject property, creating an accurate basis for valuing the subject.
Why the Other Options Are Wrong
Option A: Add the adjustment amount to the comparable's sale price
Adding the adjustment amount to a superior comparable's sale price would make the comparable even more valuable, moving it further away from the subject property rather than making them equivalent for comparison purposes.
Option C: Add the adjustment amount to the subject property value
Adjustments are never made to the subject property value in the sales comparison approach - all adjustments are made to the comparable properties to make them equivalent to the subject.
Option D: Use the comparable without any adjustment
Using a superior comparable without adjustment would result in an inflated value estimate for the subject property since the comparable's sale price reflects features that the subject doesn't have.
Superior Subtract Rule
Remember 'Superior = Subtract' - when the comparable is Superior to the subject, you Subtract from the comparable's price. Think of it as 'taking away' the extra value that makes it superior.
How to use: When you see a question about adjustments, first identify whether the comparable is superior or inferior to the subject, then apply 'Superior = Subtract' or 'Inferior = Add' to determine the direction of adjustment.
Exam Tip
Always remember that adjustments are made TO the comparables, never to the subject property, and the adjustment direction depends on whether the comparable is superior (subtract) or inferior (add) to the subject.
Common Mistakes to Avoid
- -Adding adjustment amounts when the comparable is superior to the subject
- -Making adjustments to the subject property instead of the comparables
- -Confusing the direction of adjustments based on whether features are superior or inferior
Concept Deep Dive
Analysis
The sales comparison approach requires adjusting comparable properties to make them equivalent to the subject property for accurate valuation. The fundamental principle is that all adjustments are made TO the comparable properties, never to the subject. When a comparable has superior features, its sale price reflects that superiority and must be adjusted downward to estimate what it would have sold for without those superior features. This creates an apples-to-apples comparison that reveals the subject property's market value.
Background Knowledge
The sales comparison approach is based on the principle of substitution - a buyer will not pay more for a property than the cost of acquiring an equally desirable substitute. All adjustments are made to comparable properties to make them equivalent to the subject property, creating a reliable basis for estimating the subject's market value.
Real-World Application
If you're appraising a 3-bedroom home and find a comparable 4-bedroom home that sold for $300,000, you would subtract the value of that extra bedroom (say $15,000) from the comparable's sale price, resulting in an adjusted price of $285,000 for comparison purposes.
More Valuation Principles Questions
Which of the following best describes the bundle of rights theory in real estate?
Market value is best defined as:
The principle of substitution states that:
A comparable sale occurred 8 months ago for $450,000. Market conditions analysis shows property values have increased 0.5% per month. What is the adjusted sale price?
What is the difference between reproduction cost and replacement cost?
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