analyzing and adjusting comparable sales

ANALYZING AND ADJUSTING COMPARABLE SALES

Chapter 9

CHAPTER TERMS AND CONCEPTS

Automated valuation model(AVM)Comparison processDate of saleDepreciated cost methodDirect comparison methodEconomic unit of comparisonElements of comparison

methodGross income multiplier (GIM)Linear regressionLocation elementsLump-sum dollar adjustment

Matched pairMultiple regressionPercentage adjustmentPhysical elementsPhysical unit of comparisonSales adjustment gridSales graphTerms and conditions of saleTotal property comparisonUnit of comparisonValue range

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LEARNING OUTCOMES

1. Name the four elements of sales comparison.

2. List the three rules for making adjustments.

3. Name the three types of adjustments most commonly used.

4. Explain how a value conclusion is reached.

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Which is more attractive to buyers?

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ELEMENTS OF COMPARISON

Terms and Conditions of Sale

Time of Sale

Location

Physical Features

Elements of Comparison

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PRICE VS. TERMS OF SALE

• Seller Financing Better or worse than Standard?

• Assumed Financing Better terms?

• Seller-Paid Points Generally, Buyer pays points. In a Buyer’s market, Seller may pay points

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COMPARING & ADJUSTING SALES

• Identify and Compare Sales Characteristics

• Make Market-Derived Adjustments that are: Reasonable Are consistent among the sales Explain the price differences between the

sales & subject

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RULES FOR MAKING ADJUSTMENTS

Adjust the Sale to the SubjectUse Market-Derived AdjustmentsAdjust in the Proper Order

Terms/conditions Time Location Physical features

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TYPES OF SALES ADJUSTMENTS

• Lump Sum Dollar

• Percentage

• Units of Comparison

The Adjustment Process

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Figure 9-2

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URAR FORM ANALYSIS GRID

Figure 9-4

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UNITS OF COMPARISON SALES ADJUSTMENTS

Total Property Price of similar sale May involve ranking the salesPhysical Units Price per square foot, price per acre Price per room Price per dwelling unitEconomic Units Price per buildable dwelling unit Price per developable building area Gross income multipliers

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GRAPHING THE SALES

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USING MATCHED PAIRS

Adjusting Sales with the Direct Market Method

Finding Adjustments for Size Subject: 2,600 SF living area Sales: Similar, except different in size Adjustment: Search for sales differing only in size

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USING MATCHED PAIRS Evidence

o 2,500 SFo 2,700 SF

Calculation:o Sale Size Priceo B= 2,700 SF $280Ko A= 2,500 SF $270Ko Difference 200 SF $10 K

Adjustment for Size:

$10,000÷200 SF

= $50 SF Change

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ESTIMATING ADJUSTMENTS BY DEPRECIATED COST

Difference Subject has 440 SF garage Comparable sale has no garage Unit cost new is estimated at $33.50/SF

Cost New of Garage Size 440 SF @ $33.50 per SF Total replacement cost

o 440 SF X $33.50 per SF = $14,470

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ESTIMATING ADJUSTMENTS BY DEPRECIATED COST

Depreciation Age of subject garage = 29 yrs Economic life = 100 yrs % depreciation = 29/100 = 29% Amount of depreciation is 29% of $14,470 or $4,275

Adjustment Amount Cost new $14,470 Less: Depreciation - $4,275 Equals: Amt. of adjust rounded $10,000

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ADJUSTING FOR SALE TERMS OR CONDITIONS

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Using Linear Regression to Analyze Sales

Figure 9.8

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AUTOMATED VALUATION MODELS

• Computer Software Program Analyzes data in specified area or

neighborhood Relates results of database search to

subject property information imputed into the model.

• When Applied to an Individual Property It Is Not an Appraisal.

• An AVM May Become the Basis for an Appraisal

ARRIVING AT AN INDICATED VALUE

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ARRIVING AT AN INDICATED VALUE

Review the Entire Approach Comparability Activity levels Adjustment accuracy Statistical limits Lagging the market Motivation

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ARRIVING AT AN INDICATED VALUE

Review the Sales Data Sales data Adjustments

Estimate Value Range Value range shown by comparable Upper and lower limits

Select a Final Value

SUMMARY

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Analyzing and adjusting comparable sales rely on two main methods: the direct comparison method and the elements of comparison method.

The direct comparison method simply compares the overall desirability of each sold property with that of the subject, without any adjustments. The elements of comparison method compares the sales with reference to the details of four critical elements: the terms and conditions of sale, the time of sale, the location elements, and the physical elements of the properties.