Using paired sales analysis, Sale A (with a pool) sold for $285,000 and Sale B (without a pool) sold for $265,000. Both properties are otherwise identical. What is the indicated value of the pool?
Correct Answer
C) $20,000
Why this is correct: Paired sales analysis isolates the value contribution of a single feature by comparing two nearly identical sales that differ only by that feature. The adjustment is the price difference. Calculation: $285,000 - $265,000 = $20,000. Why the other choices are wrong: "$285,000" is the sale price of the property with the pool, not the pool's value. "$275,000" is the average price, not the difference. "$10,000" is half the difference, not the correct calculation. Exam tip: In paired sales, subtract: Sale with feature minus sale without feature = feature value. Ensure properties are otherwise comparable.
Why This Is the Correct Answer
Option B ($20,000) is correct because paired sales analysis determines feature value by calculating the simple difference between sale prices of otherwise identical properties. Sale A with the pool sold for $285,000 while Sale B without the pool sold for $265,000, creating a direct $20,000 difference. This difference represents the market-derived value that buyers are willing to pay specifically for the pool feature. The calculation is straightforward: $285,000 - $265,000 = $20,000, which isolates the pool's contributory value.
Why the Other Options Are Wrong
PAIR = Price A minus Price B = Real difference
Remember 'PAIR' - take the Property with the feature (A) and subtract the Property without the feature (B) to get the Real value difference. Think of it as 'PAIRed subtraction' where you always subtract the lower price from the higher price.
How to use: When you see a paired sales question, immediately identify which property has the feature and which doesn't, then subtract the price of the property without the feature from the price of the property with the feature.
Exam Tip
Always double-check that you're subtracting in the correct direction - the property WITH the feature minus the property WITHOUT the feature equals the feature's value.
Common Mistakes to Avoid
- -Confusing the feature value with the total property value
- -Subtracting in the wrong direction (without feature minus with feature)
- -Averaging the two prices instead of finding the difference
Concept Deep Dive
Analysis
Paired sales analysis is a fundamental technique in real estate appraisal that isolates the value contribution of specific property features by comparing two otherwise identical properties that differ only in the feature being analyzed. This method relies on the principle of substitution, which states that a rational buyer will not pay more for a property than the cost of acquiring an equally desirable substitute. The technique requires finding truly comparable sales where all variables are controlled except for the single feature being valued. When properly executed, the difference in sale prices directly indicates the market's perception of value for that specific feature.
Background Knowledge
Paired sales analysis is one of the primary adjustment techniques used in the sales comparison approach to value real estate. It requires finding sales of properties that are nearly identical except for one differing characteristic, allowing appraisers to quantify how much specific features contribute to or detract from property value.
Real-World Application
Appraisers regularly use paired sales analysis to develop adjustment grids for the sales comparison approach, determining how much to adjust comparable sales for differences in features like pools, garages, fireplaces, or lot sizes when valuing a subject property.
More Sales Comparison Questions
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What is the present value of $150,000 to be received in 5 years, assuming a discount rate of 8%?
A triangular lot has a base of 100 feet and a height of 80 feet. What is the area in square feet?
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A warehouse has interior dimensions of 120 feet × 80 feet × 20 feet high. What is the volume in cubic feet?
A property is purchased for $500,000 with a loan of $400,000. What is the loan-to-value ratio?
A property sold for $400,000 with annual gross rent of $40,000. What is the gross rent multiplier?
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