A vacant site being appraised is encumbered by a utility easement. A comparable vacant site without the easement sold for $370,000. Paired land sales indicate a $48,000 discount for the easement. No other adjustments apply. What is the indicated value of the subject land?
Correct Answer
A) $322,000
Adjust the comparable toward the subject: $370,000 − $48,000 = $322,000. An inferior subject requires this downward adjustment to the comparable.
Why This Is the Correct Answer
Option A is correct because the unencumbered comparable is superior to the easement-burdened subject, so its price is adjusted downward. The calculation is $370,000 − $48,000 = $322,000.
Why the Other Options Are Wrong
Option B: $370,000
Option B, $370,000, is the unadjusted comparable price. It ignores the supported $48,000 easement discount; the correct result is $370,000 − $48,000 = $322,000.
Option C: $418,000
Option C, $418,000, adds the discount: $370,000 + $48,000 = $418,000. Because the subject is inferior, the comparable is adjusted down to $322,000.
Option D: $274,000
Option D, $274,000, subtracts the discount twice: $370,000 − (2 × $48,000) = $274,000. The discount is applied once, giving $322,000.
CBS: Comp Better, Subtract
If the Comp is Better than the subject, Subtract the adjustment from the comp. The adjustment goes on the comparable.
How to use: Use this to choose the sign of each adjustment.
Exam Tip
An encumbered subject compared with an unencumbered comparable calls for a downward adjustment to the comparable.
Common Mistakes to Avoid
- -Adding the discount to a superior comparable
- -Adjusting the subject rather than the comparable
- -Applying the discount twice
Concept Deep Dive
Analysis
This question tests adjustment direction for an easement encumbrance. The comparable has no easement, so it is superior to the subject. Its price is reduced by the supported paired-sales discount.
Background Knowledge
An easement can limit the use of part of a site and reduce its value. Paired sales of similar sites with and without the easement can support a dollar adjustment, which is applied to comparables that differ from the subject.
Real-World Application
An appraiser values a residential lot crossed by a utility easement that limits where a house can be placed. Using paired sales of encumbered and unencumbered lots, she supports a discount and subtracts it from a clean comparable lot's price.
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An improved comparable sold for a cash-equivalent $1,100,000. Market allocation evidence supports a typical land-to-total-price ratio of 22% for competitive properties (standard appraisal guidance allocation method). Separately, depreciated cost of the improvements (RCNLD) is estimated at $820,000 (standard appraisal guidance extraction method). Which pairing correctly contrasts the two land-value indications from these facts?