The subject vacant site is near a high-pressure gas transmission pipeline. A comparable vacant site that is not near such a pipeline sold for $800,000. Paired land sales indicate a discount of $170,000 for pipeline proximity. No other adjustments apply. What is the indicated land value of the subject?
Correct Answer
D) $630,000
Adjust the comparable toward the subject: $800,000 − $170,000 = $630,000. An inferior subject requires this downward adjustment to the comparable.
Why This Is the Correct Answer
Option D is correct because the comparable without the stigma sold for $800,000 and the supported stigma discount is $170,000. Since the subject is inferior, the comparable's price is adjusted downward: $800,000 − $170,000 = $630,000. That adjusted price is the indicated land value for the subject.
Why the Other Options Are Wrong
Option A: $800,000
Option A, $800,000, is the comparable's unadjusted sale price. It ignores the supported $170,000 stigma discount; the correct indication is $800,000 − $170,000 = $630,000.
Option B: $970,000
Option B, $970,000, adds the discount instead of subtracting it: $800,000 + $170,000 = $970,000. Because the subject is inferior, the comparable is adjusted downward to $630,000.
Option C: $460,000
Option C, $460,000, subtracts the $170,000 discount twice: $800,000 − $340,000 = $460,000. Only one supported adjustment applies, giving $630,000.
Comp better, subtract
If the comparable is better than the subject, take value away from the comparable; if it is worse, add value to it.
How to use: Use this whenever you must decide the sign of an adjustment in a sales comparison grid.
Exam Tip
Identify first whether the subject or the comparable has the advantage, then remember that the adjustment is applied to the comparable's price.
Common Mistakes to Avoid
- -Adding the discount to the comparable because the subject has the stigma
- -Adjusting the subject instead of the comparable
- -Applying the same adjustment twice
Concept Deep Dive
Analysis
This question tests the direction of a paired-sales adjustment in vacant land sales comparison. The comparable lacks the pipeline proximity stigma, so it is superior to the subject. Adjustments are made to the comparable to make it like the subject, so a superior comparable is adjusted downward.
Background Knowledge
Paired sales analysis isolates the price effect of one characteristic by comparing sales that are similar except for that feature. The measured difference is then applied to comparables to adjust them toward the subject, downward when the comparable is superior and upward when it is inferior.
Real-World Application
An appraiser values a vacant lot next to a high-pressure gas transmission line. Paired sales of otherwise similar lots near and away from such lines show a measurable discount, which the appraiser subtracts from an unaffected comparable's price to indicate the subject's value.
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