Market data show that vacant sites near a mushroom farm sell for $150,000 less than similar sites elsewhere, based on paired land sales. The subject vacant site is near a mushroom farm. A comparable vacant site that is not near one sold for $850,000. No other adjustments apply. What is the indicated value of the subject land?
Correct Answer
A) $700,000
Adjust the comparable toward the subject: $850,000 − $150,000 = $700,000. An inferior subject requires this downward adjustment to the comparable.
Why This Is the Correct Answer
Option A is correct because the comparable is adjusted toward the inferior subject: $850,000 − $150,000 = $700,000. The discount was derived from paired land sales. No other adjustments apply, so the indicated land value is $700,000.
Why the Other Options Are Wrong
Option B: $850,000
Option B, $850,000, is the comparable's unadjusted sale price. It ignores the $150,000 proximity stigma discount; the correct result is $850,000 − $150,000 = $700,000.
Option C: $1,000,000
Option C, $1,000,000, adds the discount ($850,000 + $150,000 = $1,000,000), which would treat the subject as superior. Since the subject is inferior, the correct result is $850,000 − $150,000 = $700,000.
Option D: $550,000
Option D, $550,000, subtracts the discount twice ($850,000 − $150,000 − $150,000 = $550,000). Only one adjustment applies, so the correct result is $850,000 − $150,000 = $700,000.
Adjust the Comp, Not Subject
The comparable is reshaped to match the subject. If the subject has a nuisance the comparable lacks, the comparable's price drops.
How to use: Use this to set the sign of an external-influence adjustment.
Exam Tip
If the subject has a negative influence the comparable lacks, subtract from the comparable. A choice equal to the unadjusted price is usually a distractor when an adjustment is supported.
Common Mistakes to Avoid
- -Adding the discount to the comparable
- -Ignoring a supported adjustment and using the raw sale price
- -Applying the adjustment twice
Concept Deep Dive
Analysis
This question tests the direction of a paired-sales adjustment. The subject suffers mushroom farm or cultivation facility proximity stigma, while the comparable does not. Because the subject is inferior, the comparable's price is reduced by the supported $150,000 discount.
Background Knowledge
External influences such as nearby agricultural or industrial operations can reduce what buyers pay for a site. Paired sales analysis isolates that effect by comparing similar sales with and without the influence. The resulting adjustment is applied to the comparable sale.
Real-World Application
An appraiser values a rural lot near a mushroom growing operation known for odors. Paired sales show buyers pay noticeably less for exposed lots, so the appraiser deducts that supported amount from an unaffected comparable.
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An improved property has an indicated value of $2,050,000, and market data indicate a land allocation ratio of 22%. What is the indicated land value by allocation?
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Paired land sales show a $170,000 discount for vacant sites near a leather tannery. The subject vacant site is near a tannery. A comparable vacant site that is not near one sold for $810,000. No other adjustments apply. What is the indicated land value of the subject?