Chapter 3 Valuation Process

Chapter 3 Valuation Process - Oct 4, 2011 Oct Chapter 3 -...

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Unformatted text preview: Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 1 Important Words & Key Concepts Important • Cost Reporting Services • Cost Indices Cost • • • • • Capitalization Rates Macro Data Primary Data Public Records Quantitative Data Oct 4, 2011 • • • • • (Cost Indexes) (Cost General Data Micro Data Secondary Data Specific Data Quantitative Analysis Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 2 Type of General Data • General Data will help you understand the General influence of the four forces originating outside a property and their effect on the property. These forces are; Social – Economic – governmental and environmental. governmental • General Data is classified as primary or General secondary. secondary. Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 3 Primary and Secondary Data • Primary data becomes secondary data when it Primary is made available for the public as general use. is • Secondary data could be employment Secondary statistics, population information, or income levels. When an appraiser relies on the information gotten from others they are relying on secondary data. on Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 4 Macro Data • Macro Data is data covering the larger picture. • Total employment at the local, regional, and Total • • • • national levels. Income for the regional and national area would Income be Macro while local income would be Micro. be Product growth or decline. Interest Rates – Balance of Traces. Usually general data obtained from secondary Usually sources. sources. Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 5 Micro Data • Micro Data on the other hand is more specific Micro to the property that you are appraising. to • Local Incomes – Vacancy Factors for the area. • Comparable properties used for comparables. • Micro Data can be from a Primary Source or a Micro Secondary Source. Secondary Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 6 Uses of General Data • General Data provides a background against General • which to place analysis of the subject property, supplies information from which possible trends affecting values can be inferred and figures derived for calculations within the three approaches. approaches. Forms a basis for judgments about highest and Forms best use, reconciliation of value indications within the three approaches, and the final estimate of defined value. defined Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 7 Sources of General Data • Today there is almost unlimited supply of data. Today Although good unbiased data pertaining to local communities can be difficult to find, it is usually available. usually • Some states have online retrieval systems that Some provide historic and current economic, social and governmental data. Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 8 Collecting & Selecting Specific Data • The entire appraisal process is dependent upon The the collection and analysis of specific data from the market. All three approaches to value are really market approaches and depend upon accurate and reliable market data. upon Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 9 Specific Data • Specific Data is analyzed through the process Specific of comparison. The key task is locating data that provides the information needed to apply the correct techniques in each of the three data approaches to value. approaches Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 10 Investigation of Market Transactions • A study is made to find the comparables sales study and listing whose costs, income and expenses information are similar to the subject property. Usually the more recent the comparable the current sale and the more similar it is to the subject property, the better it will be as an indicator of value. Usually more data are gathered than are actually used in the appraisal. appraisal. Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 11 Collecting Data • After a complete analysis of the subject After property’s characteristics and components the comparables are gathered. comparables • The comparables should be comparable in lot The size, age, improvement size, and location. size, • When comparable sales data in the area is When limited the appraiser may reach outside of the area into similar properties in a similar area. area Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 12 Collecting Data ~ 2 • • • • • • • • • Number of sales Period of time covered by the sales Availability of property for sale on the market Rate of absorption Rate of turnover Characteristics and motivations of buyers and sellers Terms and condtiions of the sales Use of property before and after the sale Other significant characteristics Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 13 Location of Sales Data • • • • • • • Multiple Listing Records Public Records Deeds TransferTax Records Real Estate publications Realtors Property managers - tenants Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 14 Public Records • Public Records refer to information that is Public • available to the public. This information is normally a month or two old depending on your source for the information. source Once a record is recorded at the County Assessors Once Office, the data reporting services (Trans-Union, Esperian, and Data Quick) log it into their computers, the very new information is more valuable so most services sell brand new or 30 day information. day Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 15 Deeds • Again Deeds become availabe according to Again which services you are subscribing to. Most services provide you with 30 day information as the 3 day information is too expensive. as • This will not be as timely as you may need and This could paint an inaccurate picture of hwat is gotin on in a given neighborhood. gotin Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 16 Transfer Tax Records • The Tax Records don’t become availabe for at The least one month after the recordation of the properyt. In some counties the information does not become available for 6 months or a year. year. • For those reasones you have to carefully check For the date of recordation to see if the data is usable for your comparison work. usable Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 17 Assessment Records • Assessment Records in California take almost Assessment one year before the tax rolls have the actual information that you will be using today. The tax information as a “Tax Sheet” is more timely than this source. timely Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 18 Real Estate Newspapers • Real estate newspapers are good sources of Real General Information but not Timely General Information. • Most real estate news sources are more Most regional and national than local in nature. regional • So, while they are good sources of information So, they are not normally good sources of comparable information. comparable Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 19 Commercial Publications • Commercial Publications give information Commercial concerning commercial properties and can be revealing. They are not good sources of comparable information for sales, rents, capitalization rates, gross rent multipliers, etc., but may be good sources of information concerning the use of these valuation tools. concerning Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 20 General Circulation Newspapers • General Circulation Newspapers give you an General • overview of information that you should know. You have to keep in mind that the author normally has limited knowledge of the report that they are writing and are more “parroting” the information than reporting and commenting on it. Be aware than when reading a newspaper any Be necessary information can normally be gleaned in the first paragraph. After the first paragraph the information simply gets more involved. information Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 21 Realtors and Real Estate Brokers • Realtors and Real Estate Brokers can be very good Realtors • • sources of information. Normally they are dealing very rapidly and unless the property has something to do with their business and income they won’t normally be very helpful. normally When they are involved in the transaction you have to When be extremely cautious of them “puffing” the value of a property. property. They are salesmen and can be convincing , and less They than truthful. than Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 22 Shared Sales Data Shared • Shared Sales Data ahs to do with sharing Shared information with other appraisers. This is a VERY common practice within our industry. IF the appraiser is competent then the information you will get will normally be truthful, accurate, timely, and relevant. truthful, • Like any profession the culpability of any Like information gotten from another depends on them and their interpretation. Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 23 Property Managers • Property managers can be a rich source of rental Property information, expenses of operation, and vacancy rates. information, • Two problems enter here. They are often afraid that Two you are appraising the building they manage, it’s been sold, and they will lose their position. The second thing is that they feel they are giving private information of the company or owner they manage the building for. the • I’ve found that trading information works well with I’ve managers. “ I’ll share all the rents, expenses, and vacancies I’ve gathered if you’ll give me your rents, expenses, and vacancies. expenses, Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 24 Multiple Listing Services (MLS) • Multiple Listing Services are normally a very Multiple rich source of very coveted information. Here you can get comparable sales data, comparable rents, capitalization rates, and gross rent multipliers. multipliers. • You will have to learn to use the particular You Multiple Listing Service that gives the information needed for the area you are working in. working Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 25 Multiple Listing Services (MLS) • The other thing is you’ll have to join that particular The • • MLS – it is worth the information that you will have available to you as a member. available Since you are not going to be entering your listings in Since the board you normally attain member ship for less than the Realtor Members. than Currently the 3 Boards that I belong to cost about Currently $800 per year each. In those boards an affiliate appraiser member is about $120 a quarter, or $480 a year – about ½ of what I pay as a Realtor Member. year Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 26 Atlases Survey Maps Assessors Parcel Maps • These are available in California but have These rarely been used, as such, since approximately 1980. • Since that time the information is made Since available to us through the various Boards of Realtors, and or “Free Subscriptions “from Title Companies. Title • The Title Companies will give you a free The “Property Profile” or “Listing Package” “Property Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 27 Atlases Survey Maps Assessors Parcel Maps ~ Page 2 Page Assessors • The information coming from the title companies The • • ahs all of the information we used to get from the County Assessors Maps. County While these services CAN be yours for the asking While the Title Representative will need to understand why they benefit from your services. why Usually making yourself available for Usually consultation will give them what they will need to clear the association through the hierarchy. clear Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 28 Verification of Sales Data • Each sale used as a comparison by the appraiser Each should be viewed “at least” from the outside. Ideally an interior inspection would be more desirable, but while the polished appraiser can accomplish that, the new appraiser rarely learns that technique. The owner of a comparable has literally no interest in the appraiser looking at the interior of their home, except to give them an idea how it compares with other properties. Use that. how Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 29 Verification of Sales Data ~ Page 2 Page Verification • A conversation with the broker who had the conversation • • listing or the broker who came up with the buyer should give you some insight concerning the desirability of the property for a comparable. desirability Again, the brokers have very little interest in your Again, need for information. Unless, they are parties to the transaction. the When they are parties to the transaction, they will When often exaggerate, even lie. often Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 30 Filing Sales Data • In days gone by, in California, we did use In filing systems in the way of 3X5 cards and old real estate boards books of listings and books of comparables. of • That has gone the way analogue television That sets. Our filing system today is all on computer and will normally be contained in the data that you had gathered from a previous appraisal. appraisal. Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 31 Additional Market Data • You should be learning that all information You finally comes to us from data. • All three areas of appraisal; The – The Comparable Approach to Value – The Income Approach to Value The – The Cost Approach to Value are accurately arrived at because we have actual data that is representative of what we need for what we are tying to produce. need Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 32 Additional Market Data ~ Page 2 Page Additional • Knowing that the information from all areas comes to Knowing • • • use from comparables is helpful in this way; use Comparables Sales Approach – Improvements that Comparables have already been sold and are very similar to the property or can be accurately adjusted. property Income Approach Information – from similar sales of Income similar property and their rents and expenses. similar Cost Approach Information – from comparable sales Cost and from Cost Manuals, such as Marshall and Swift. and Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 33 Improvement Cost Data Improvement Replacement Cost & Reproduction Cost • In-Office Cost Data Files • Cost Reporting Services • From past appraisals that • Cost Reporting Services From Cost • you, or another trusted appraiser have done you will have a rich source of Improvement Cost Data Improvement Remember that Cost Data Remember can be; can – Replacement Cost (Usual) – Reproduction Cost (Rare) Oct 4, 2011 are the normal way for us to get Cost Data. The manual we most use is the Marshall and Swift Manual. We will use that manual in this class, briefly. briefly. Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 34 Cost Indices (Indexes) Cost (Indexes) • We can use these in California but we rarely We do. They are constructed to give us the historic cost for a year, with the current index. If we divide the Historic Cost into the Current Index, or the Index for a future year, we will come up with a multiplier. That multiplier times the cost when built should give us the current cost to build. current Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 35 Cost Indices (Indexes) ~ Page 2 Page • For example if we have a current cost, as per For our text book of 332.5 for 2009 and a cost for 2004 of 284.4 we would dived 332.5 by 284.4 and come up with 1.1691 this becomes the multiplier of a 2004 to move up to the present. If it cost us $100,000 to build something in 2004 we would multiple $100,000 X 1.1691 and come up with $116,9127989 for today's cost. Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 36 Cost Indices (Indexes) ~ Page 3 Page Cost • Conversely, when using these indexes, if we Conversely, use the reciprocal of today's cost, that is, divide 1.1691 into 1 we will come up with 0.8553 and that number times the current value of $116,912.7989 will give us$100,000. value • The indices (indexes) work in both directions. The Which helps us in understanding values indicated by indices or indexes. indicated Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 37 Income & Expense Data • Income and expense data, including Gross Income Rent Multipliers and Capitalization Rates are arrived at by extracting the information from the comparables that we are using. the • If we have an exact comparable and it If indicates a rent of $1,800 for a 2 Bedroom, 2 Bath apartment unit we can use that rent on the building we are appraising. building Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 38 Income & Expense Data ~ Page 2 Page Income • We normally use comparable rents that reflect the top We market rents, the current rents of the building. market • The exception to that would be in rent controlled areas of The Los Angeles, or any other city with rent control. Los • The same thing is true of expenses and vacancy rates, as The well as the capitalization rate and the gross rent multiplier. multiplier. • If the building we are appraising is not a good If representation of what it should or could be doing we adjust it to reflect the actual market. WE do that from data we gather from the comparables. data Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 39 Capitalization Rate Data • Capitalization Rates used on Income property Capitalization are a percentage known from other investments, or “The Market” as we say, and divided into the net operating income. divided • IF you are actually using comparable property, IF and the neighborhoods are at least similar, you have a very accurate tool for estimating value or verifying value against your other methods and indicators. and Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 40 Summary Chapter 3 Collecting and Selecting Data General Data – Primary and Secondary Micro and Macro Data Collecting Data MLS – Public Records – Deeds – Tax MLS Records – Real Estate Publications – Realtors – Property Managers Realtors Verification of Data Filing Data for Future Use Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 41 Summary Chapter 3 Collecting and Selecting Data Additional Market Data and Sources Cost Indices (Indexes) Marshal and Swift (Cost Manuals) Income and Expense Data Gross Rent Multipliers Capitalization Rates Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 42 Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 43 1. General data helps appraisers understand the 1. four forces known as: four a. primary, secondary, old, new. b. Primary, secondary, social, economic. c. Social, economic, governmental, Social, environmental. environmental. d. Local, regional, state, national. Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 44 2. Primary data becomes secondary data: a. When it contains items of only secondary When b. c. d. Oct 4, 2011 Oct interest. interest. When the government declassifies it. After it is 90 days old. When it is published and available to the When public. public. Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 45 3. Macro data does not include: a. National employment trends. b. The number of households in the subject The town. town. c. Regional income levels d. The number of people employed locally in a The specific industry. specific Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 46 4. Micro data includes which of the following? a. Number of apartment units in the subject’s Number b. c. d. Oct 4, 2011 Oct community. community. Local vacancy rates. Census data on household income. All of the above. Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 47 5. General data is essential in valuation because General it: it: a. Provides background. b. Supplies information about trends. c. Forms the basis for judgments. d. All of the above. Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 48 6. Specific data helps: a. Set the fee for the appraisal. b. Determine how long it will take to complete Determine the assignment. the c. The appraiser choose the computer software. d. None of the above. Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 49 7. Which of the following often is not in the Which assessor’s records? assessor’s a. Name of the owner. b. Dimensions of the property. c. Recent improvements to the property. d. Last sale price of the property. Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 50 8. One of the problems with MLS data is: a. Gross living area measurements may be Gross incorrect. incorrect. b. The description of functional and economic The obsolescence may be incorrect. obsolescence c. The condition of the house is often The exaggerated. exaggerated. d. All of the above. Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 51 9. It is important to verify comparable sale It data: data: a. To determine if all depreciation has been To b. c. d. Oct 4, 2011 Oct considered. considered. To determine if the measurements are correct. To determine if the price and terms are To accurate. accurate. All of the above. Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 52 10. The basis of the three approaches to value is: a. General data. b. Specific data. c. Tax data. d. Site data. Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 53 11. What information about a property usually What can be found on its deed? can a. Mortgage balance. b. Tax rate. c. Legal description. d. None of the above. Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 54 12. What recent laws are making it harder for What appraisers to obtain information? appraisers a. National security regulations. b. Copyright laws. c. Privacy laws. d. None of the above. Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 55 Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 56 Oct 4, 2011 Oct Chapter 3 - Harrison Appraisal - Collecting and Selecting Data 57 ...
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This note was uploaded on 10/04/2011 for the course REAL ESTAT 40 taught by Professor Robertrooks during the Winter '08 term at El Camino.

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