A comparable on 8,000 square feet sold for $310,000; the subject lot has 9,000 square feet. Market analysis specifically supports a marginal $6 per square foot for this area difference, rather than merely an average whole-site land rate. What adjusted price results?
Correct Answer
C) $316,000
310000 + (9000 − 8000) × 6 = 316000. Common errors: subtracting the area adjustment instead of adding it gives $304,000; leaving out the area adjustment gives $310,000; scaling by the overall price per square foot instead of the marginal rate gives $348,750.
Why This Is the Correct Answer
Option C is correct because the comparable has 1,000 fewer square feet of lot than the subject, so its price is adjusted up by the marginal rate. $310,000 + (9,000 − 8,000) × $6 = $310,000 + $6,000 = $316,000. The question states the $6 marginal rate is supported for this area difference.
Why the Other Options Are Wrong
Option A: $304,000
Option A, $304,000, comes from subtracting the area adjustment: $310,000 − (9,000 − 8,000) × $6. The comparable's smaller lot makes it inferior, so the $6,000 is added, giving $316,000.
Option B: $310,000
Option B, $310,000, leaves out the lot-size adjustment entirely. The supported $6 marginal rate on the 1,000-square-foot difference adds $6,000, giving $316,000.
Option D: $348,750
Option D, $348,750, scales the comparable's overall price per square foot of lot to the subject's lot: $310,000 / 8,000 × 9,000. That treats the whole price as varying with lot size instead of using the supported $6 marginal rate; the correct result is $316,000.
Margin, not average
Price the extra square feet at the marginal rate, not at the property's average price per square foot.
How to use: Use this when choosing a rate for a size difference in lot or living area.
Exam Tip
Watch for distractors that scale the entire sale price by size; size adjustments use the supported rate for the difference only.
Common Mistakes to Avoid
- -Adjusting downward for a comparable with a smaller lot
- -Using the average price per square foot instead of the marginal rate
- -Skipping a supported lot-size adjustment
Concept Deep Dive
Analysis
This question tests a lot-size adjustment using a marginal rate. The comparable's lot is 1,000 square feet smaller than the subject's, so the comparable is inferior and is adjusted upward. The adjusted price is $310,000 + (9,000 − 8,000) × $6 = $316,000.
Background Knowledge
The added value of extra lot area is often less per square foot than the average land price, which is why marginal rates are used for size differences. Adjustments are made to the comparable to reflect the subject's characteristics. A comparable with a smaller lot than the subject is adjusted upward.
Real-World Application
In a subdivision with standard lots, extra yard area adds value but at a lower rate than the whole-site average. The appraiser's analysis supports $6 per square foot for size differences in this range. A comparable with 1,000 fewer square feet of lot is adjusted up by $6,000.
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Which two depreciation categories may each be classified as curable or incurable by comparing the cost to remedy a deficiency with the value gained?
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Which highest-and-best-use criterion addresses whether a proposed use is allowed by zoning and applicable legal restrictions?
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When reconciling value indications from the three approaches to value, an appraiser should:
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