When conducting a sales comparison approach, which property characteristic adjustment would be most appropriate for a subject property that has a swimming pool when the comparable sale does not?
Correct Answer
A) Add value to the comparable's sale price
When the subject property has a feature (swimming pool) that the comparable sale lacks, you add the value of that feature to the comparable sale price to make it equivalent to the subject property. This adjustment process ensures the comparable reflects what the subject property would have sold for.
Why This Is the Correct Answer
Adjust the comparable toward the subject: the subject has a pool the comparable lacks, so add the pool's contributory value to the comparable's price.
Why the Other Options Are Wrong
Option B: Subtract value from the comparable's sale price
Subtracting would be right if the comparable had the pool and the subject did not.
Option C: Add value to the subject property's price
Adjustments are made to the comparable's price to estimate the subject's value; the subject has no price yet to adjust.
Option D: Make no adjustment for the pool
A pool can affect what buyers pay, so ignoring it leaves the comparison unadjusted.
Deep Analysis of This Valuation Question
The contributory value of a pool is what buyers would pay for it in that market, which may be much less than its cost; in some markets it adds little at all. The adjustment should be based on sales evidence, not on the cost of building the pool.
Background Knowledge for Valuation
In the sales comparison approach, each comparable's price is adjusted to show what it would have sold for if it matched the subject. If the comparable is inferior, add; if superior, subtract.
Memory Technique
Think of a COMPASS always pointing to the subject property. Just like a compass needle adjusts to point north, we adjust the COMParables to point toward (match) the Subject property. When the subject has something extra (like a pool), we ADD to the comparable to make it 'point' the same direction. Never adjust the compass itself (subject) - only adjust what's pointing to it (comparables).
When you see adjustment questions, visualize the compass. Ask: 'What am I adjusting?' If it's the comparable (the needle), you're on the right track. If the subject has more features, ADD to the comparable to make it 'point' the same way.
Exam Tip for Valuation
Remember: Always adjust the comparable, never the subject. If subject has a feature the comparable lacks, ADD to comparable. If comparable has a feature the subject lacks, SUBTRACT from comparable. The subject property value is what you're solving for.
Real World Application in Valuation
A real estate agent is preparing a CMA (Comparative Market Analysis) for a client selling their home with a swimming pool. They find three recent sales of similar homes nearby, but none have pools. To accurately estimate the subject property's value, the agent researches pool values in the area and finds pools add approximately $25,000 to property values. They add $25,000 to each comparable's sale price, creating adjusted values that reflect what those properties would have sold for with pools. This gives the client an accurate market value estimate for their pool-equipped home.
Common Mistakes to Avoid on Valuation Questions
- •Adjusting the subject property instead of the comparable
- •Subtracting value when the subject has superior features
- •Making no adjustments when clear differences exist
Related Topics & Key Terms
Key Terms:
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