An appraiser is valuing a vacant site exposed to highway traffic noise. A comparable vacant site that is not exposed to the noise or close to the highway sold for $435,000. Paired land sales indicate a $58,000 discount for traffic noise and highway proximity. No other adjustments apply. What land value is indicated for the subject?
Correct Answer
A) $377,000
Adjust the comparable toward the subject: $435,000 − $58,000 = $377,000. An inferior subject requires this downward adjustment to the comparable.
Why This Is the Correct Answer
Option A is correct because the comparable sold for $435,000 without the stigma, and the subject is inferior, so the comparable is adjusted down: $435,000 − $58,000 = $377,000. The discount was extracted from paired land sales, which is an accepted way to support an adjustment. No other adjustments apply, so $377,000 is the indicated land value.
Why the Other Options Are Wrong
Option B: $435,000
Option B, $435,000, is the comparable's unadjusted sale price. It ignores the supported $58,000 discount for the subject's traffic-noise and highway-proximity stigma; the correct result is $435,000 − $58,000 = $377,000.
Option C: $493,000
Option C, $493,000, adds the discount instead of subtracting it ($435,000 + $58,000 = $493,000), which would treat the subject as superior. Because the subject is inferior, the correct result is $435,000 − $58,000 = $377,000.
Option D: $319,000
Option D, $319,000, deducts the discount twice ($435,000 − $58,000 − $58,000 = $319,000). Only one supported adjustment applies, so the correct result is $435,000 − $58,000 = $377,000.
Subject Inferior, Comparable Lower
Ask what the comparable would have sold for if it looked like the subject. A worse subject means the comparable's price comes down.
How to use: Use this check every time you decide whether to add or subtract an adjustment.
Exam Tip
Always adjust the comparable toward the subject. Work out which property is superior or inferior before choosing a plus or minus sign.
Common Mistakes to Avoid
- -Adding the discount because the subject is the property with the problem
- -Adjusting the subject instead of the comparable
- -Applying the same adjustment twice
Concept Deep Dive
Analysis
This question tests the direction of a sales comparison adjustment. Adjustments are made to the comparable to make it resemble the subject. Because the subject suffers traffic-noise and highway-proximity stigma that the comparable lacks, the subject is inferior and the comparable's price must be adjusted downward by the supported $58,000 discount.
Background Knowledge
In the sales comparison approach, adjustments are applied to the comparable sale, not to the subject. If the subject is inferior to the comparable in some feature, the comparable's price is adjusted downward; if the subject is superior, it is adjusted upward. Paired sales analysis is one recognized way to support the amount of an adjustment.
Real-World Application
An appraiser values a vacant lot that backs onto a busy highway. Paired sales of otherwise similar lots, some near the highway and some not, show buyers paying about $58,000 less for highway-adjacent sites. The appraiser subtracts that amount from a quiet-street comparable's price.
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Previous Question
The subject property is a vacant lot with a net market ground rent of $30,000 per year. Since the prior appraisal, land capitalization rates for similar lots have risen from 6.0% to 7.5%, and the rent has not changed. How much has the indicated land value declined?
Next Question
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