When using paired sales analysis, an appraiser:
Correct Answer
B) Analyzes two similar properties that differ in only one characteristic
Paired sales analysis involves comparing two similar properties that are identical except for one characteristic to isolate the value impact of that specific difference.
Why This Is the Correct Answer
Option B correctly describes paired sales analysis as the comparison of two similar properties that differ in only one characteristic. This is the precise definition of the technique - the properties must be substantially similar to ensure that the price difference can be attributed to the single varying characteristic. The method's effectiveness depends on this controlled comparison where all other factors are held constant. This allows appraisers to extract reliable, market-supported adjustment amounts for specific property features or conditions.
Why the Other Options Are Wrong
Option A: Compares two identical properties that sold on the same date
While paired sales analysis does compare two properties, they don't need to be identical or sold on the same date. The key is that they differ in only one characteristic, and sale dates can vary as long as market conditions are considered.
Option C: Uses two different approaches to value the same property
This describes using multiple valuation approaches (like sales comparison and cost approach) on the same property, which is standard appraisal practice but not paired sales analysis. Paired sales analysis is specifically a technique within the sales comparison approach.
Option D: Compares sale prices from two different time periods
Comparing sale prices from different time periods relates to time adjustments or market trend analysis, not paired sales analysis. Paired sales analysis focuses on isolating the impact of property characteristics, not temporal market changes.
The PAIR Method
P - Properties (two similar ones), A - Analyze (the difference), I - Isolate (one characteristic), R - Reveal (the value impact). Think of a 'pair' of shoes that are identical except one has laces and one has velcro - the price difference tells you the value of that single feature.
How to use: When you see 'paired sales analysis' on the exam, immediately think 'PAIR' and remember you need two similar properties with only ONE difference to isolate the value impact of that specific characteristic.
Exam Tip
Look for keywords like 'one characteristic,' 'single difference,' or 'isolate the impact' when identifying paired sales analysis questions. Eliminate answers that mention multiple approaches, time periods, or identical properties.
Common Mistakes to Avoid
- -Thinking the properties must be completely identical rather than similar with one key difference
- -Confusing paired sales analysis with using multiple valuation approaches
- -Believing the sales must occur on the exact same date rather than within a reasonable time frame
Concept Deep Dive
Analysis
Paired sales analysis is a fundamental adjustment technique in the sales comparison approach where an appraiser identifies two properties that are nearly identical except for one specific characteristic. This method allows the appraiser to isolate and quantify the market's reaction to that single difference by comparing their sale prices. The difference in sale prices between the two properties represents the market-derived adjustment for that specific characteristic. This technique is particularly valuable because it provides empirical, market-based evidence for adjustments rather than relying on cost or subjective estimates.
Background Knowledge
Paired sales analysis is a cornerstone technique within the sales comparison approach, one of the three primary valuation methods in real estate appraisal. Appraisers use this method to develop reliable market-based adjustments for differences between comparable sales and the subject property. Understanding this technique is essential for properly applying the sales comparison approach and supporting adjustment decisions with empirical market data.
Real-World Application
An appraiser valuing a home with a pool finds two recent sales: one house with a pool that sold for $485,000 and a nearly identical house without a pool that sold for $465,000. The $20,000 difference provides market evidence that a pool adds $20,000 in value in that neighborhood.
More Valuation Principles Questions
Which of the following best describes the bundle of rights theory in real estate?
Market value is best defined as:
The principle of substitution states that:
A comparable sale occurred 8 months ago for $450,000. Market conditions analysis shows property values have increased 0.5% per month. What is the adjusted sale price?
What is the difference between reproduction cost and replacement cost?
People Also Study
Property Description & Analysis
20% of exam
Market Analysis & Highest/Best Use
15% of exam
Appraisal Math & Statistics
15% of exam
USPAP (Ethics & Standards)
15% of exam
Report Writing & Compliance
10% of exam
Related Tools
Previous Question
A comparable sale occurred 8 months ago for $425,000. Market conditions indicate property values have increased 0.5% per month since that time. What is the adjusted sale price?
Next Question
Which characteristic of real property refers to the concept that no two properties are exactly alike?