Two comparable sites differ only in that one has all utilities to the lot line. How should this be handled?
Correct Answer
A) Adjust for the supported market effect of utility availability
Analyze supported market reaction to utility availability, including feasible extension cost, time, risk and capacity. The price difference need not equal or be bounded by construction cost alone. Neither automatic exclusion nor treating the parcels as equal addresses the utility difference.
Why This Is the Correct Answer
Option A is correct because the appraiser should adjust for the supported market effect of having utilities to the lot line. Buyers may pay more for a serviced site because it avoids extension cost, delay, risk and capacity uncertainty. The size of that difference comes from market analysis and need not equal or be limited by construction cost.
Why the Other Options Are Wrong
Option B: Treat them as equal, since utility extension is feasible in the area
Option B treats the sites as equal because utility extension is feasible in the area. Feasibility does not erase the cost, time and risk of extending utilities, so ignoring the difference fails to address a feature the market may price.
Option C: Exclude the unserviced site from the analysis
Option C excludes the unserviced site from the analysis. A single measurable difference is a reason to adjust, not grounds to discard an otherwise comparable sale.
Option D: Deduct the full engineering cost without market analysis
Option D deducts the full engineering cost without market analysis. Cost is one input, but the market's price difference may be more or less than construction cost, so an adjustment should be supported by market evidence.
Market Measures, Cost Informs
Cost to extend utilities is evidence, but the market sets the adjustment. Ask what buyers actually pay for the difference.
How to use: Use this when a question offers a cost figure as if it were automatically the adjustment amount.
Exam Tip
Prefer answers that adjust for a supported market effect. Be cautious of choices that ignore a difference, discard a comparable, or substitute cost without analysis.
Common Mistakes to Avoid
- -Treating feasible utility extension as if the utilities were already in place
- -Equating the adjustment with the full construction cost
- -Discarding a comparable because of one adjustable difference
Concept Deep Dive
Analysis
This question tests how to handle a single difference between comparable sites, here utility availability. The sales comparison approach adjusts for differences that the market recognizes, based on supported market evidence. The appraiser considers extension cost, time, risk and capacity but measures the adjustment by market reaction rather than by cost alone.
Background Knowledge
Utility availability is a physical and economic characteristic of a site that can affect its utility and marketability. Adjustments in sales comparison reflect how buyers react to a difference, which can be informed by cost, time, risk and capacity. Cost and value are different measures, so the adjustment is not fixed at cost.
Real-World Application
An appraiser compares two rural lots, one with water, sewer and power at the lot line and one needing a long extension. Paired sales and builder interviews show how much more buyers pay for serviced lots, and the appraiser uses that market difference, cross-checked against extension estimates.
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