Paired land sales show a discount of $110,000 for vacant sites near a ready-mix concrete plant. A comparable vacant site without this proximity sold for $625,000. The subject has this proximity, which makes it inferior to the comparable. No other adjustments apply. What is the indicated land value?
Correct Answer
B) $515,000
Adjust the comparable toward the subject: $625,000 − $110,000 = $515,000. An inferior subject requires this downward adjustment to the comparable.
Why This Is the Correct Answer
Option B is correct because the comparable lacks the stigma and the subject is inferior, so the comparable's price is adjusted downward: $625,000 - $110,000 = $515,000. Adjustments are made to the comparable property, not the subject, and the $110,000 discount was supported by paired land sales.
Why the Other Options Are Wrong
Option A: $625,000
Option A, $625,000, is the comparable's unadjusted sale price. It ignores the supported $110,000 stigma discount even though the subject is inferior; adjusting gives $515,000.
Option C: $735,000
Option C, $735,000, comes from $625,000 + $110,000, which adjusts in the wrong direction as if the subject were superior. Because the subject is inferior, the adjustment is downward: $625,000 - $110,000 = $515,000.
Option D: $405,000
Option D, $405,000, comes from $625,000 - $110,000 - $110,000, which deducts the discount twice. Only one $110,000 adjustment applies, giving $515,000.
CBS: comp better, subtract
If the comparable is better than the subject, subtract; if the comparable is inferior, add. Here the comparable has no stigma, so it is better and the adjustment is subtracted.
How to use: Use this every time you decide the sign of a sales comparison adjustment.
Exam Tip
Restate the stem as a comparison of the comparable to the subject before choosing the sign. Subject inferior means comparable superior, which means a minus adjustment.
Common Mistakes to Avoid
- -Adjusting the subject instead of the comparable
- -Adding when the comparable is superior
- -Applying the same adjustment twice
Concept Deep Dive
Analysis
This question tests the direction of an adjustment in sales comparison. Adjustments are made to the comparable to make it resemble the subject, so when the subject is inferior because of the concrete plant proximity stigma, the comparable's price is adjusted down. The distractors make no adjustment, adjust in the wrong direction, or apply the adjustment twice.
Background Knowledge
In sales comparison, each comparable's price is adjusted for differences from the subject so it indicates what the subject would sell for. If the comparable is superior in a feature, its price is adjusted down; if inferior, up. Adjustment amounts can be supported through paired sales, statistical analysis or modeling.
Real-World Application
An appraiser values a vacant commercial lot next to a ready-mix concrete plant. Paired sales of similar lots near and away from the plant support a dollar discount for the proximity, so the appraiser subtracts that amount from a comparable that is not near the plant. The appraiser explains the paired-sales support in the report.
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