An appraiser is valuing a vacant site near a correctional facility. A comparable vacant site that is not near a prison sold for $520,000. Paired land sales show a discount of $77,000 for proximity to a prison. No other adjustments apply. What is the indicated value of the subject site?
Correct Answer
A) $443,000
Adjust the comparable toward the subject: $520,000 − $77,000 = $443,000. An inferior subject requires this downward adjustment to the comparable.
Why This Is the Correct Answer
Option A is correct because the superior comparable is adjusted down to match the subject: $520,000 − $77,000 = $443,000. Adjustments are made to the comparable, and paired sales support the discount.
Why the Other Options Are Wrong
Option B: $520,000
Option B, $520,000, is the comparable's unadjusted price. It ignores the supported $77,000 discount; the indication is $520,000 − $77,000 = $443,000.
Option C: $597,000
Option C, $597,000, adds the discount ($520,000 + $77,000), adjusting in the wrong direction. Because the subject is inferior, the comparable is adjusted down to $443,000.
Option D: $366,000
Option D, $366,000, subtracts the discount twice: $520,000 − (2 × $77,000) = $366,000. Only one $77,000 adjustment applies, giving $443,000.
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
A subject with a negative influence the comparable lacks is inferior, so the comparable is superior and should be adjusted downward.
Common Mistakes to Avoid
- -Adding the discount because the subject has the negative feature
- -Adjusting the subject instead of the comparable
- -Doubling the adjustment
Concept Deep Dive
Analysis
This question tests the direction of a sales comparison adjustment for proximity to a correctional facility. The subject has the stigma and the comparable does not, so the comparable is superior. Its price is adjusted downward by the supported $77,000 discount.
Background Knowledge
Sales comparison adjustments bring the comparable's price in line with the subject's characteristics. External influences such as nearby institutional uses can affect buyer demand and value. Paired sales analysis is one method for measuring such an influence.
Real-World Application
An appraiser values a vacant lot across the road from a state correctional facility. The best comparable sold for $520,000 in an area without that influence, and paired sales show a $77,000 discount, so the adjusted indication is $443,000.
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