An appraiser is valuing a vacant site near a scrapyard. A comparable vacant site that is not near a scrapyard or junkyard sold for $560,000. Paired land sales show an $85,000 discount for such proximity. No other adjustments are required. What is the indicated value of the subject site?
Correct Answer
C) $475,000
Adjust the comparable toward the subject: $560,000 − $85,000 = $475,000. An inferior subject requires this downward adjustment to the comparable.
Why This Is the Correct Answer
Option C is correct because the comparable without the scrapyard stigma is superior to the subject, so its price is reduced. The calculation is $560,000 − $85,000 = $475,000. The adjustment is applied to the comparable, not the subject.
Why the Other Options Are Wrong
Option A: $560,000
Option A, $560,000, is the unadjusted comparable price. It ignores the supported $85,000 stigma discount; the correct result is $560,000 − $85,000 = $475,000.
Option B: $645,000
Option B, $645,000, adds the discount: $560,000 + $85,000 = $645,000. Because the subject is inferior, the comparable is adjusted down to $475,000.
Option D: $390,000
Option D, $390,000, subtracts the discount twice: $560,000 − (2 × $85,000) = $390,000. The discount is applied once, giving $475,000.
CBS: Comp Better, Subtract
When the Comp is Better than the subject, Subtract the difference from the comp's price. Worse comp, add.
How to use: Use this to set the sign of each line in an adjustment grid.
Exam Tip
Translate a nuisance near the subject into 'comparable superior, adjust the comparable down' before calculating.
Common Mistakes to Avoid
- -Adding the discount to the superior comparable
- -Applying the adjustment to the subject's value instead of the comparable
- -Deducting the same discount twice
Concept Deep Dive
Analysis
This question tests adjustment direction when the subject suffers an external stigma. The comparable lacks the scrapyard proximity, so it is superior. Its price is adjusted downward by the supported paired-sales discount to indicate the subject's land value.
Background Knowledge
External factors such as proximity to a scrapyard can reduce land value. Paired sales of otherwise similar sites with and without the influence can isolate a supported adjustment, which is then applied to comparables that differ from the subject in that respect.
Real-World Application
An appraiser values a residential lot next to a salvage yard. She finds a comparable lot a mile away with no nearby salvage operation and uses paired sales in the area to support a stigma discount applied to that comparable.
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Previous Question
The allocation method estimates land value as a market-supported land-to-total-property ratio applied to the subject’s supported overall value. Supported overall value is $1,650,000 and the supported land allocation ratio is 19%. What indicated land value by allocation results?
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