A cash-equivalent vacant-site sale of $1,200,000 contains 40,000 SF. Market analysis supports its $/SF rate for an otherwise matched 35,000-SF subject. What value does that rate indicate?
Correct Answer
A) $1,050,000
Rate = $1,200,000/40,000 SF = $30/SF; indication = 35,000 SF × $30/SF = $1,050,000. The indicated result is $1,050,000. Common errors: using the comparable price without adjusting for size gives $1,200,000; inverting the size ratio gives $1,371,429; subtracting the area difference as dollars gives $1,195,000.
Why This Is the Correct Answer
Option A is correct because $1,200,000 ÷ 40,000 SF = $30/SF, and 35,000 SF × $30/SF = $1,050,000. The supported unit rate is applied to the subject's smaller area. This is a standard use of price per square foot as a unit of comparison.
Why the Other Options Are Wrong
Option B: $1,195,000
Option B, $1,195,000, subtracts the area difference as if it were dollars: $1,200,000 − (40,000 − 35,000) = $1,195,000. Square feet must be converted to value through the unit rate, giving 35,000 × $30 = $1,050,000.
Option C: $1,200,000
Option C, $1,200,000, uses the comparable's price without adjusting for the subject's smaller size. Applying the $30/SF rate to 35,000 SF gives $1,050,000.
Option D: $1,371,429
Option D, $1,371,429, inverts the size ratio: $1,200,000 ÷ 35,000 × 40,000 = $1,371,429. The rate comes from the comparable's own area, $1,200,000 ÷ 40,000 = $30/SF, times 35,000 SF = $1,050,000.
Divide by Comp, Multiply by Subject
Divide the comparable's price by the comparable's area to get the rate. Multiply that rate by the subject's area.
How to use: Use this to extract and apply a unit price correctly.
Exam Tip
Derive the rate from the comparable's own area, then apply it to the subject. A smaller subject at the same rate should produce a lower value.
Common Mistakes to Avoid
- -Using the comparable's total price without adjusting for size
- -Dividing the comparable price by the subject's area
- -Subtracting square footage directly from dollars
Concept Deep Dive
Analysis
This question tests extracting a unit price from a comparable sale and applying it to the subject. Divide the comparable's price by its area to find the price per square foot, then multiply by the subject's area. Market analysis supports using the same rate for the subject.
Background Knowledge
Units of comparison such as price per square foot allow sales of different sizes to be compared. The unit price is derived from the comparable and applied to the subject's size. This assumes market analysis supports the same rate, since unit prices can vary with size.
Real-World Application
An appraiser values a 35,000 square foot commercial pad. A nearby 40,000 square foot pad sold for $1,200,000, and the market shows no size-related price difference in this range, so the appraiser applies the $30 per square foot rate.
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