Final answer:
The concept refers to adjusting the sales price of a comparable property or item to determine the value of a subject property. This is similar to the economic method of using index numbers to adjust prices for inflation. It is a crucial step in real estate valuation and economic analysis.
Step-by-step explanation:
The dollar value or percentage added to or subtracted from the sales price of a comparable to arrive at an indicated value for the subject is essentially describing the process used in real estate and business to determine the value of a property or item. When comparing a subject property to similar properties that have been sold, adjustments are made for differences in features or circumstances to reach an indicated value for the subject. This technique acknowledges that no two properties or items are identical and that their values can be reflected accurately only by considering these differences.
In practice, this method of valuation is similar to the way economists adjust price levels using index numbers. To simplify complex price data, an index is created that reports average changes in prices over time, providing a more standardized measure that can be used for comparisons across different time periods. Typically, a base year is selected, and the price level for that year is assigned an index number of 100. Future price levels are then compared to this base year to understand inflation or deflation in prices.