A comparable vacant site sold for $900,000. Unlike the comparable, the subject site is near a cement manufacturing plant, 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
A) $750,000
Adjust the comparable toward the subject: $900,000 − $150,000 = $750,000. 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 reflect the subject: $900,000 − $150,000 = $750,000. Adjustments are made to the comparable, and paired sales support the amount.
Why the Other Options Are Wrong
Option B: $900,000
Option B, $900,000, is the comparable's unadjusted price. It ignores the supported $150,000 discount; the indication is $900,000 − $150,000 = $750,000.
Option C: $1,050,000
Option C, $1,050,000, adds the discount ($900,000 + $150,000), adjusting in the wrong direction. Because the subject is inferior, the comparable is adjusted down to $750,000.
Option D: $600,000
Option D, $600,000, subtracts the discount twice: $900,000 − (2 × $150,000) = $600,000. Only one $150,000 adjustment applies, giving $750,000.
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
Establish which property is superior before calculating; a subject with a negative external influence means the comparable is adjusted down.
Common Mistakes to Avoid
- -Adding the discount because the subject is affected
- -Adjusting the subject rather than the comparable
- -Applying the adjustment twice
Concept Deep Dive
Analysis
This question tests the direction of a sales comparison adjustment for proximity to a cement plant. The subject has the stigma and the comparable does not, so the comparable is superior. Its price is adjusted down by the supported $150,000 discount.
Background Knowledge
In the sales comparison approach, the comparable's price is adjusted for differences from the subject. Nearby industrial uses can create a negative external influence on a site through noise, dust or traffic. Paired sales analysis helps measure the market's reaction to such influences.
Real-World Application
An appraiser values a vacant site near a cement manufacturing plant. Her comparable sold for $900,000 away from that influence, and paired land sales support a $150,000 discount, so she adjusts the comparable to $750,000.
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