Paired sales analysis is used to:
Correct Answer
B) Quantify the value impact of specific property differences
Why this is correct: Paired sales analysis is a technique used primarily in the sales comparison approach. It involves comparing two sales that are very similar except for one key characteristic (e.g., one has a garage, one does not). The price difference is attributed to that characteristic, allowing the appraiser to quantify an adjustment. Why the other choices are wrong: Determining highest and best use involves a separate four-test analysis. Calculating depreciation in the cost approach uses different methods like age-life or breakdown. Developing capitalization rates typically involves market extraction from income and sale price data, not paired sales. Exam tip: Paired sales = isolate one feature. It's the best way to derive market-supported adjustments.
Why This Is the Correct Answer
Why this is correct: Paired sales analysis is a technique used primarily in the sales comparison approach. It involves comparing two sales that are very similar except for one key characteristic (e.g., one has a garage, one does not). The price difference is attributed to that characteristic, allowing the appraiser to quantify an adjustment. Why the other choices are wrong: Determining highest and best use involves a separate four-test analysis. Calculating depreciation in the cost approach uses different methods like age-life or breakdown. Developing capitalization rates typically involves market extraction from income and sale price data, not paired sales. Exam tip: Paired sales = isolate one feature. It's the best way to derive market-supported adjustments.
Why the Other Options Are Wrong
PAIR = Pinpoint Adjustments In Real-estate
Remember PAIR: Pinpoint one difference, Analyze similar sales, Isolate the impact, Reliable adjustments result. Think of it as comparing a 'pair' of nearly identical properties to find the value of their one difference.
How to use: When you see 'paired sales analysis' on the exam, immediately think PAIR and remember it's about isolating and quantifying specific property differences for adjustment purposes in the sales comparison approach.
Exam Tip
Look for keywords like 'quantify,' 'isolate,' 'specific differences,' or 'adjustments' in questions about paired sales analysis - these signal that the question is about measuring the value impact of particular property features.
Common Mistakes to Avoid
- -Confusing paired sales analysis with highest and best use analysis
- -Thinking it's used for overall depreciation rather than specific feature adjustments
- -Associating it with income approach techniques like cap rate development
Concept Deep Dive
Analysis
Paired sales analysis is a fundamental technique in the sales comparison approach where appraisers identify and compare two or more similar property sales that differ primarily in one specific characteristic. The goal is to isolate the market's reaction to that single difference and quantify its dollar impact on value. This method allows appraisers to develop reliable, market-supported adjustments for various property features such as lot size, square footage, garage presence, or condition differences. The technique requires finding truly comparable sales where all other factors are essentially equal except for the one feature being analyzed.
Background Knowledge
The sales comparison approach requires adjustments for differences between comparable sales and the subject property, and these adjustments must be market-supported rather than arbitrary. Paired sales analysis provides the most reliable method for quantifying these adjustments by isolating single variables in otherwise similar transactions.
Real-World Application
An appraiser needs to determine the value difference between a house with a garage versus without. They find two recent sales of similar homes in the same neighborhood - one with a 2-car garage that sold for $285,000 and one without a garage that sold for $270,000. The paired sales analysis indicates the market values a 2-car garage at approximately $15,000.
More Sales Comparison Questions
A property generates $85,000 in Net Operating Income and sells for $1,062,500. What is the overall capitalization rate?
A property has potential gross income of $180,000, vacancy and collection loss of $15,000, and operating expenses of $65,000. What is the Net Operating Income?
A comparable sale occurred 8 months ago for $425,000. Market conditions indicate property values have increased 0.5% per month since that time. What is the adjusted sale price?
A property generates $150,000 in potential gross income. Market data indicates a 7% vacancy rate and operating expenses of 35% of effective gross income. If the cap rate is 9.5%, what is the indicated value?
A property sold for $320,000 one year ago. If market conditions have improved by 6% since that sale, what is the time-adjusted sale price for comparison purposes?
A commercial building cost $2,500,000 to construct. The land value is $600,000. If the building has suffered 15% physical deterioration and 8% functional obsolescence, what is the depreciated cost of the improvements?
A building's gross rent multiplier (GRM) is 120. If the monthly rent is $2,500, what is the indicated value?
In the cost approach, economic obsolescence is characterized as:
The concept of regression in property values means that:
A commercial property has potential gross income of $120,000, vacancy and collection loss of 8%, and operating expenses of $35,000. Using a cap rate of 9.5%, what is the indicated value?
People Also Study
Real Estate Market
13.6% of exam
Property Description
11.8% of exam
Land or Site Valuation
4.5% of exam
Cost Approach
13.6% of exam
Income Approach
8.2% of exam
Related Tools
Previous Question
A comparable property sold for $320,000. It has a pool worth $15,000 that the subject property lacks, but the subject has a garage worth $20,000 that the comparable lacks. What is the adjusted sale price of the comparable?
Next Question
The subject is 12 years old and a comparable is 18 years old. Paired sales support $2,400 per year of effective age. What adjustment applies to the comparable?