Question 7

The increase in value of a home due to the addition of central air conditioning is best estimated by using the difference in the sales prices of comparable homes with and without air conditioning.

Estimating the increase in a home's value from central air conditioning is most accurately done by comparing the sales prices of similar homes, one equipped with air conditioning and the other without. This method reflects market perceptions and actual buyer willingness to pay for the feature.

A) the full cost of the purchase and installation of the air conditioning

Using the full cost of purchase and installation does not accurately reflect market value. Homebuyers may not be willing to pay the entire cost incurred, as they consider the feature's value in relation to homes in the area rather than its installation cost.

B) one-half the cost of the purchase and installation of the air conditioning

Estimating value at one-half the cost of purchase and installation is arbitrary and does not align with market realities. Buyers do not simply value air conditioning at a fraction of its cost; rather, they assess its desirability and impact on overall home value based on comparable properties.

C) the cost of the purchase but not the installation of the air conditioning

This option ignores the total investment made in the air conditioning, which may not accurately represent the value added to the home. Just like the previous options, it fails to consider the actual market dynamics and buyer behavior regarding comparable homes.

D) the difference in the sales prices of comparable homes with and without air conditioning

This approach provides a direct correlation to the market's perception of value. It reflects what buyers are willing to pay for the added comfort and convenience of central air conditioning, making it the most reliable method for estimating the increase in home value.

Conclusion

The correct answer, D, focuses on real market comparisons, which are essential for assessing property value accurately. All other options rely on costs rather than on what buyers are willing to pay, making them inadequate for determining the true increase in home value associated with central air conditioning.