When using paired sales analysis, an appraiser:
Correct Answer
A) Analyzes two similar properties that differ in only one characteristic
Why this is correct: Paired sales analysis isolates the value contribution of a single feature by finding two properties that are nearly identical except for that one characteristic (e.g., one has a pool, one does not). The price difference is attributed to that feature. Why the other choices are wrong: Comparing identical properties sold the same date shows no adjustment. Using two approaches is reconciliation, not paired sales. Comparing prices from different periods analyzes time adjustments, not paired sales for feature extraction. Exam tip: Paired sales = 'all else equal.' It's the classic method to derive adjustment amounts.
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
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 Sales Comparison Questions
A property generates $85,000 in Net Operating Income and sells for $1,062,500. What is the overall capitalization rate?
A property has potential gross income of $180,000, vacancy and collection loss of $15,000, and operating expenses of $65,000. What is the Net Operating Income?
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?
A property generates $150,000 in potential gross income. Market data indicates a 7% vacancy rate and operating expenses of 35% of effective gross income. If the cap rate is 9.5%, what is the indicated value?
A property sold for $320,000 one year ago. If market conditions have improved by 6% since that sale, what is the time-adjusted sale price for comparison purposes?
A commercial building cost $2,500,000 to construct. The land value is $600,000. If the building has suffered 15% physical deterioration and 8% functional obsolescence, what is the depreciated cost of the improvements?
A building's gross rent multiplier (GRM) is 120. If the monthly rent is $2,500, what is the indicated value?
In the cost approach, economic obsolescence is characterized as:
The concept of regression in property values means that:
A commercial property has potential gross income of $120,000, vacancy and collection loss of 8%, and operating expenses of $35,000. Using a cap rate of 9.5%, what is the indicated value?
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