12.3 Making Market Adjustments & Advising on Price
Key Takeaways
Adjust the comparable’s price for a supported difference. Add for an inferior comparable feature and subtract for a superior one.
Use segment-specific evidence for time and feature changes and make the rate convention and adjustment base explicit.
Net sums signed changes. Gross adds their absolute amounts. Neither number replaces a review of the underlying evidence.
Explain how the reconciled value indication, competition and client instructions inform the asking or offering strategy.
Put comparable transactions on a common basis
A sales comparison asks what each verified sale indicates for the subject on the stated date. Compare the interest conveyed, concessions, market conditions, location and physical features. Apply adjustments to the comparable’s price to reflect the subject’s characteristics. If a comparable has a feature buyers value more than the subject’s, subtract the supported difference. If the comparable has a feature buyers value less, add the supported difference. For example, subtract $25,000 from the price of a comparable with a finished basement when the subject’s is unfinished and suitable market evidence supports that difference.
Use a consistent measurement basis. Apply RECA’s Residential Measurement Standard where required and identify separately reported below-grade area. Check that the comparable data actually uses a comparable basis. Use market evidence of the incremental contribution of an area or feature. A total sale price per square foot combines many influences and does not by itself give a suitable area adjustment. Check whether a single adjustment already captures a related difference to avoid counting it twice.
Choose a time adjustment that fits the evidence
A time adjustment accounts for a change in the relevant market between the comparable’s sale and the estimate date. Establish whether similar properties moved in price and over what period. A city-wide average can rise because more expensive homes sold, even when prices for the subject’s segment stayed stable. Compare evidence from genuinely similar sales and a consistent segment before applying a trend. If the evidence supports a downward change, the time adjustment can be negative. If reliable evidence does not support a change, explain the choice and its uncertainty.
A documented adjustment sequence makes the base of each calculation clear. In the worked grid, market evidence is stipulated to support a simple adjustment of 0.5% per month of the original sale price. For a different problem that specifies compound growth, the factor would be (1 + monthly rate) raised to the number of months. Use the convention supported by the evidence or specified in the exercise. In this grid, feature differences are fixed dollar amounts at the estimate date.
Work through three comparables
The subject is a 1,800 sq ft two-storey with 2.5 bathrooms, a double attached garage, an unfinished basement and a quiet location. The inputs below are hypothetical market-derived adjustments for these comparables. The grid assumes no adjustments to transaction terms. The market contributes $80 per sq ft for the stated differences, $8,000 for an extra full bath, $15,000 for the garage difference, $25,000 for basement development and $20,000 for the quieter location.
| Element | Comparable 1 | Comparable 2 | Comparable 3 |
|---|---|---|---|
| Verified sale price | $540,000 | $510,000 | $565,000 |
| Time since sale | 2 months | 4 months | 1 month |
| Time at 0.5% per month | +$5,400 | +$10,200 | +$2,825 |
| Location, with 3 backing onto busy road | — | — | +$20,000 |
| Above-grade area, 1,800 / 1,700 / 1,900 sq ft | — | +$8,000 | −$8,000 |
| Bathrooms, with 3 having an extra full bath | — | — | −$8,000 |
| Garage, with 2 having a single detached garage | — | +$15,000 | — |
| Basement, with 1 and 3 finished | −$25,000 | — | −$25,000 |
| Net adjustment | −$19,600 | +$33,200 | −$18,175 |
| Gross adjustment and share of original price | $30,400 (5.63%) | $33,200 (6.51%) | $63,825 (11.30%) |
| Adjusted indication | $520,400 | $543,200 | $546,825 |
Net is the signed total added to the sale price. Gross adds the absolute size of each adjustment, including the time adjustment in this grid. A comparable with +$25,000 and −$25,000 has zero net adjustment but $50,000 gross adjustment. For the third sale, the sum of +$2,825, +$20,000, −$8,000, −$8,000 and −$25,000 is −$18,175. Its gross percentage is $63,825 ÷ $565,000 × 100.
Reconcile and explain the pricing advice
Review how well each sale matches, how trustworthy its terms and data are and how well supported the adjustments are. A low gross adjustment can help identify similarity but cannot resolve missing data or a different market segment. Here, if sale and adjustment evidence is equally well verified, Comparable 1 is the strongest physical and location match apart from the basement. Comparable 2 provides an upper cross-check, with larger differences in area, garage and time. Comparable 3 required more adjustment and provides a weaker check. Under those assumptions a rounded range of roughly $520,000 to $540,000 is an illustrative conclusion. Check whether the spread calls for more evidence. If averaging is used, explain why its weights are appropriate. An unreasoned mean assigns the same influence to weak and strong evidence.
Explain the estimate date, scope and limitations, then separate the value indication from the client’s chosen asking or offering strategy. Active listings and sales pace help show current competition. Use the actual segment and discuss the client’s timing, exposure, alternatives and likely trade-offs. If relevant competing stock or transactions change, explain what changed and revisit the advice. The client chooses the asking or offer price.
A competitive advantage is a feature or service that helps a particular client or prospect achieve an objective in the current market. A seller’s verified step-free entry and main-floor bedroom may meet needs that nearby substitutes do not. Show the verified route and dimensions, and use comparable evidence before assigning a price contribution. If feedback instead identifies a missing handrail, compare the cost and time of a proper repair with the likely effect on utility and buyer interest. The client might repair it, disclose the condition and price accordingly, or leave the decision to buyers. A buyer prospect comparing two similar units may benefit more from checking monthly charges, the transfer of parking and relevant accessibility than from pursuing the lowest asking price. Show how each option fits the person’s priorities and how new evidence would change the advice.
A comparable sold for $485,000. It has one attached garage stall instead of the subject’s two, and one more full bath than the subject. The supported adjustments are $16,000 for the garage difference and $9,000 for the bath. There are no other adjustments. What is the adjusted price?
$478,000.
$492,000.
$510,000.
$460,000.
A verified comparable sold five months ago for $460,000. Segment evidence supports a simple, non-compounded time adjustment of 0.6% per month of the original price. The comparable’s finished basement contributes $22,000 more than the subject’s unfinished basement at the estimate date. What is the adjusted price?
$495,800.
$468,200.
$424,200.
$451,800.
Three adjusted prices are $515,000, $530,000 and $570,000. Comparable 1 is nearby and a strong physical match with verified terms and well-supported adjustments. Comparable 2 is usable with more differences. Comparable 3 needed large ravine-lot and size adjustments with weak supporting evidence. How should the associate reconcile them?
Give Comparable 1 the most weight, use Comparable 2 as a cross-check and explain the weaker evidence for Comparable 3.
Give all three equal weight because adjustment makes their reliability equal.
Use only Comparable 3 because its adjusted price is highest.
Discard the verified sales and use the highest unverified active asking price.
Sections you finish are checked off in the contents.