REAL4000_Sept_21_2010

REAL4000_Sept_21_2010 - Market Valuation & Appraisal B....

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Unformatted text preview: Market Valuation & Appraisal B. Traditional Sales Comparison Approach 1. Rationale • the current market value of a property is best indicated by the sales prices of closely similar properties in the relevant market that have sold recently in arms-length transactions. 2. When Most Applicable • for situations where closely similar properties in the relevant market are sold frequently. 3. Steps in the Sales Comparison Approach a. Identify key characteristics of subject property (1) Transactional Characteristics • Condition of the sale (forced, hurried, arms-length) • Financing terms • Property rights conveyed • Market conditions (at time of sale) (2) Property Characteristics • Location characteristics (linkages) • Physical characteristics • Legal characteristics • Use • Non-realty items b. Select comparable properties c. Estimate adjustment to comparable’s sale prices (adjust comparable to reflect subject) (1) Types of Adjustments ($ or %) (2) Direction of Adjustments 1 Market Valuation & Appraisal B. Traditional Sales Comparison Approach 3. Steps in the Sales Comparison Approach c. Estimate adjustment to comparable’s sale prices (adjust comparable to reflect subject) (3) Making Adjustments (Apartment Example) APARTMENT EXAMPLE Date of Sale Comparable (Months Ago) 1 Sale Price 2 Number of Apartments Number of rooms Condition of Building 16 64 Inferior 550,000 Location 2 6 576,000 18 67 3 8 900,000 24 100 Inferior Very Superior 4 1 530,000 14 56 Superior Very Inferior 5 5 1,050,000 30 120 Superior 6 6 680,000 20 85 Inferior Adjustments: Time: If a property is sold within 4 - 12 months adjust prices Condition: If the comparable is inferior to subject adjust 5% If the comparable is superior to subject adjust 15% If the comparable is very inferior to subject adjust 10% Location: 5% If the comparable is inferior to subject adjust 5% If the comparable is superior to subject adjust 5% If the comparable is very superior to subject adjust 10% 7 ANALYSIS Comparabl e Sales 1 Sale Price 2 3 4 5 6 $550,000 $576,000 $900,000 $530,000 $1,050,000 $680,000 64 67 100 56 120 85 Number of Rooms Price per Room $8,594 $8,597 +/- Adj Time adjustment (months ago) (adjustment magnitude) Condition of building (adjustment magnitude) 2 +/- Adj 6 $430 5% Inferior Indicated price per room x number of rooms Indicated value of subject property (105 rooms) $9,464 +/- Adj 8 $450 $430 Inferior 5% 1 $450 $8,000 +/- Adj 5 $438 5% 5% Very Superior $8,750 +/- Adj 5% Location (adjustment magnitude) Net Adjustment $9,000 +/- Adj 6 $400 5% Superior ($1,420) -15% ($900) -10% Very Inferior $946 10% Superior ($438) -5% Inferior $400 5% $430 $430 0 ($473) $0 $800 $9,023 $9,027 $9,900 $8,991 $8,750 $8,800 105 105 105 105 105 105 $947,46 1 $947,82 1 $1,039,5 00 $944,06 3 $918,75 0 $924,00 0 2 Market Valuation & Appraisal B. Traditional Sales Comparison Approach 3. Steps in the Sales Comparison Approach c. Estimate adjustment to comparable’s sale prices (adjust comparable to reflect subject) (4) Methods of estimating adjustments (a) Method - Matched Pair (concept) (b) Matched Pair – Example 1 Subject Price Sale 1 $75,000 Date Size in sq. ft. Location Current Age Basement 2,000 Sale 2 (+/-)Adj Current $74,000 Sale 3 (+/-)Adj Current $70,000 (+/-)Adj Current 2,000 1,500 1,500 Similar Similar Similar 5 yrs. 5 yrs. 5 yrs. 5 yrs. Yes No Yes No Net Adjustments Adjusted Prices (c) Matched Pair – Example 2 Transaction Price Time Between Sales Monthly Rate of Increase (compounded) Monthly Rate of Increase (non-compounded) ((sp1 –sp2)/sp1)/n 1st Sale 2nd sale A $ 100,000 $ 103,000 13 mos. 0.22763% 0.23077% B $ 95,000 $ 100,000 15 mos. 0.34254% 0.40486% C $ 106,000 $ 108,000 5 mos. 0.37454% 0.14514% Average 0.31491% 0.26026% Time Since First Sale Adjusted Price Adjusted Price 9 mos. $98,755 $98,249 Comparable Subject/ Comparable Transaction Price 1st Sale $ 96,000 3 Market Valuation & Appraisal B. Traditional Sales Comparison Approach 3. Steps in the Sales Comparison Approach d. Reconcile adjusted sales prices; obtain indicated value of subject Utilize a weighting scheme to develop a weighted average of the indicated market values based on each comparable. 4. The URAR: Uniform Residential Appraisal Report 5. Revolution in Sales Appraisal: Automated Valuation Systems (AVMs) 4 Market Valuation & Appraisal C. The Cost Approach 1. Rationale The current market value of a property is indicated by the cost of acquiring a closely similar site and constructing a similar improvement less accrued depreciation (Based on the principle of substitution). 2. Procedure Estimated cost new of existing improvements - Estimated accrued depreciation = Depreciated cost of building improvements + Estimated value of site = Indicated value by the cost approach 3. Steps in the Cost Approach a. Estimating cost new of existing improvements on the subject property. (1) Alternative Definitions of Cost New (a) Reproduction Cost Method (b) Replacement Cost Method (2) Methods of Estimating Cost New (a) Unit Comparison (Most Aggregate) (b) Unit in place (Segregated Cost) (c) Quantity survey 5 Market Valuation & Appraisal C. The Cost Approach 3. Steps in the Cost Approach a. Estimating cost new of existing improvements on the subject property. (3) Sources of Cost Data (a) Cost Services R.S. Means www.rsmeans.com Marshall and Swift www.marshallswift.com (b) Actual costs of newly completed bldgs. (c) Contractor's estimates (d) Appraiser’s Files b. Estimate accrued depreciation for the existing improvements. (1) Physical Deterioration (2) Functional Obsolescence (3) External Obsolescence c. Estimate depreciated value of improvements = Cost new - accrued depreciation d. Estimate the site’s value as though vacant e. Indicated value of subject by the cost approach = site value + depreciated building costs 6 COST APPROACH S UMMARY: APARTMENT ANALYSIS L AND Site Market value Units (acres) x Price per unit Site Value 4 $37,500 $150,000 Site improvements: Reproduction Cost Depreciation (%) Depreciated value Utilities $ 13,000 5 12,350 Paving 24,000 20 19,200 Walkways 4,000 15 3,400 Landscaping 6,000 0 6,000 2,000 15 1,700 Outside lighting $ 49,000 42,650 BUILDINGS Apartments Units (sq. ft.) x Price per unit Reproduction Costs x Depreciation (%) Depreciated Value Indicated Value From Cost Approach 27,000 $42 $1,134,000 30 (Rounded) $793,800 $986,450 $986,000 7 Name:_______________________________(please print) Student ID: _______________________________ This sheet confirms that I have downloaded the lecture outline and any associated handouts (when applicable) from the REAL 4000 web page. I also acknowledge that to receive credit for downloading this material, I must submit this page to the Professor on or before class on September 21, 2010. Signature: _____________________________________ Date:___________________ ...
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This note was uploaded on 10/05/2010 for the course FIN 3000 taught by Professor Ackute during the Spring '10 term at Kennesaw.

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