A comparable vacant site sold for $860,000. Unlike the comparable, the subject site is near a commercial composting facility, which makes it inferior. Paired land sales show a proximity stigma discount of $150,000. No other adjustments apply. What is the indicated value of the subject site?
Correct Answer
B) $710,000
Adjust the comparable toward the subject: $860,000 − $150,000 = $710,000. An inferior subject requires this downward adjustment to the comparable.
Why This Is the Correct Answer
Option B is correct because the superior comparable is adjusted down to reflect the subject's inferior location: $860,000 − $150,000 = $710,000. Adjustments are made to the comparable, and the paired-sales discount supports the amount.
Why the Other Options Are Wrong
Option A: $860,000
Option A, $860,000, is the comparable's unadjusted price. It ignores the supported $150,000 stigma discount; the indication is $860,000 − $150,000 = $710,000.
Option C: $1,010,000
Option C, $1,010,000, adds the discount ($860,000 + $150,000), which moves the comparable in the wrong direction. Because the subject is inferior, the comparable is adjusted down to $710,000.
Option D: $560,000
Option D, $560,000, subtracts the discount twice: $860,000 − (2 × $150,000) = $560,000. Only one $150,000 adjustment applies, giving $710,000.
CBS: Comp Better, Subtract
If the comparable is better than the subject, subtract; if the comparable is inferior, add.
How to use: Use this whenever you must decide the direction of an adjustment to a comparable.
Exam Tip
Decide which property is superior first; when the subject has the negative influence, the comparable is adjusted down.
Common Mistakes to Avoid
- -Adding the discount because the subject has the problem
- -Adjusting the subject rather than the comparable
- -Counting the same adjustment twice
Concept Deep Dive
Analysis
This question tests the direction of a sales comparison adjustment for an external stigma. The subject is near a composting facility and the comparable is not, so the comparable is superior. Its price is adjusted downward by the supported $150,000 discount.
Background Knowledge
Sales comparison adjustments are applied to the comparable to make it resemble the subject. Nearby uses that buyers find objectionable can create a negative external influence that reduces site value. Paired sales analysis compares otherwise similar sales with and without the influence to support the adjustment.
Real-World Application
An appraiser values a vacant site downwind of a commercial composting operation. Her comparable sold for $860,000 in a location without that influence, and paired land sales support a $150,000 discount, so she adjusts the comparable to $710,000.
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