An appraiser is valuing a vacant site near an oil refinery. A comparable vacant site that is not near a refinery sold for $670,000, and paired land sales show a $130,000 discount for refinery proximity. No other adjustments apply. What land value is indicated for the subject?
Correct Answer
D) $540,000
Adjust the comparable toward the subject: $670,000 − $130,000 = $540,000. An inferior subject requires this downward adjustment to the comparable.
Why This Is the Correct Answer
Option D is correct because the comparable lacks the refinery-proximity stigma that affects the subject, so its price is reduced by the paired-sales discount: $670,000 − $130,000 = $540,000. This adjusts the comparable toward the inferior subject.
Why the Other Options Are Wrong
Option A: $670,000
Option A, $670,000, is wrong because it is the comparable's unadjusted price and ignores the supported $130,000 stigma discount. The correct indication is $670,000 − $130,000 = $540,000.
Option B: $800,000
Option B, $800,000, is wrong because it adds the discount ($670,000 + $130,000) as though the subject were superior. The subject is inferior, so the result is $670,000 − $130,000 = $540,000.
Option C: $410,000
Option C, $410,000, is wrong because it deducts the $130,000 discount twice ($670,000 − $260,000). Only one adjustment applies, giving $670,000 − $130,000 = $540,000.
Fix the comparable, not subject
Ask what the comparable would have sold for if it had the subject's problem; that hypothetical price is your adjusted value.
How to use: Use this question to set the sign of any stigma or location adjustment.
Exam Tip
When the subject has a negative influence the comparable lacks, expect the adjusted comparable price to be lower than its sale price.
Common Mistakes to Avoid
- -Adding the stigma discount to the comparable
- -Deducting the same adjustment twice
- -Leaving the comparable unadjusted
Concept Deep Dive
Analysis
This question tests the direction of a paired-sales stigma adjustment. Because the subject suffers refinery-proximity stigma and the comparable does not, the comparable is superior and its price is adjusted downward by the supported discount.
Background Knowledge
External influences such as proximity to heavy industry can reduce land value, and the market reaction can be measured with paired sales. Adjustments are made to the comparable to reflect how it differs from the subject. A superior comparable is adjusted downward.
Real-World Application
An appraiser values a residential lot near a petroleum refinery. Using paired sales of similar lots near and away from the refinery, the appraiser supports a stigma discount and subtracts it from a comparable located away from the refinery.
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