the sales comparison approach basic real estate appraisal: principles & procedures – 9 th...
TRANSCRIPT
The Sales Comparison Approach
Basic Real Estate Appraisal: Principles & Procedures – 9th Edition
© 2015 OnCourse Learning
Chapter 8
STUDENT LEARNING OUTCOMES• List and Explain the Four Steps in the Sales
Comparison Approach• Explain the Important Concepts Behind the
Approach• Explain How to Decide if a Sale is Comparable• Discuss what Information about a
Comparable Sale should be Collected• Identify the Major Sources of Market Data• Outline the Statistical Techniques that can be
used to Analyze Sales2
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8.1 INTRODUCING THE SALES COMPARISON APPROACH
Four Steps in the Sales Comparison Approach
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OUTLINE OF APPROACH
1. Research Comparable Sales• MLS, Public Records, etc.
2. Analyze & Compare Sales to the Subject Property & Each Other• How Much Do They Differ in $’s, and Why?
3. Adjust for Differences Between the Sales and the Subject Property
4. Arrive at a Value Estimate for the Subject Property as Indicated by the Adjusted Sales 4
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KEY CONCEPTS OF SALES APPROACH
Importance of the Principle of Substitution• A Well-Informed Buyer will not Pay an amount
Greater than the Cost of Acquiring or Building an Equally Desirable Substitute Property• Buyers Compare Competitive Listings• Sellers set Asking Prices based on Recent Sales
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KEY CONCEPTS OF SALES APPROACH
Simplicity• Simpler and More Direct than other approaches• More Reliable (given enough data)• Less Possibility for Errors to Occur in the
Processing of the Data• Often the Easiest to Explain to Clients and Users
of Appraisals
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KEY CONCEPTS OF SALES APPROACHStatistical Connections• Sampling of Market Activity• Most Probable Price (i.e. Probabilities)• Bracketing• Does the Price or Value Lie Within the Range?
• Data Selection• Select Some Sales Better - Some Sales Worse
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KEY CONCEPTS OF SALES APPROACH
Adjustments• Adjustment Techniques Help Identify Key
Property Differences• The Techniques Also Help Indicator How Much
to Adjust for Differences• Adjustments Allow Reader / Client to
Objectively Review and Understand
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KEY CONCEPTS OF SALES APPROACHUse of Market Data in Other Approaches• Data is Essential to All Three Approaches• Land Value for the Cost Approach• Extract Support for and Estimate of Accrued
Depreciation used in the Cost Approach• Market Rents Used in the Income Approach• Capitalization Rates Derived from Data• Objectivity Analysis will be Evidenced by
the Market Data Collected and Analyzed 9
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8.2 COLLECTING SALES DATACriteria For Selecting Comparable Sales• Competitive Property• Reasonable Substitute for Subject?• Appeals to the Same Buyers (Submarket)?• Same Important Characteristics?
• Open-Market Transactions• Unusual Conditions or Circumstances?• Date of Sale• Close in Time (Contract Date vs. Escrow Date) 10
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SELECTING COMPARABLE SALES (Con’t.)• How Comparable Must It Be?• As Comparable As You Can Find• Similar in Time of Sale & Location• Similar Size, Age & Important Characteristics
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SELECTING COMPARABLE SALES (Con’t.)• Defining the Sales Search Area• Many Sales (Small) vs. Few Sales (Expanded)
• Consider & Analyze Sales History of Subject• Three Years Prior to Date of Sale (USPAP)• Past Sales, Listings, Pending? Ask About It!
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WHAT INFORMATION IS NEEDED?• Sales Transaction Data• Date of Sale (“meeting of minds” vs. COE)• Price and Terms of Sale (Financing, Concessions)• Legal Description• Grantor and Grantee (Related?)• Personal Property Included, if any• Motivation of Parties (Circumstances, etc.)• Physical Characteristics of Sale• Land: Size, Shape, Topography, Available Utilities• Improvements: Size, Type, Quality, Condition 13
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WHAT INFORMATION IS NEEDED?• Legal Data• Zoning• Taxes and Special Assessments• Public and Private Restrictions• Location (General & Specific Desirability)• Comparability• Detrimental Influences?•Market Conditions• General State of the Market (Impact on Price)• Availability and Type of Financing 14
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WHAT INFORMATION IS NEEDED?• Using Listings and Offers• Typically Not a Substitute for Closed Sales• However, in Uncertain or Changing Markets
Clients ask for Analysis of the Competitive Market• They Provide Good Evidence of Trends and
Attitudes on Date of Value (vs. Historical Sales)• Listings tend to Set the Upper Limit of Value• Reject Offers tend to Set the Lower Limit• Talk to Market Participants
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WHAT INFORMATION IS NEEDED?• How Many Sales?• Three Good Sales May Be Good Enough• Less Reliable Sales May Require More• Know Client Requirements / Expectations• Intended Use May Dictate Number of Sales• Verification of Data• Dig Deeper If Price Appears Out of Line• Improves Data Reliability• Inspect (to the degree practical / necessary)• Cross-Check with Another Source 16
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SOURCES OF MARKET DATA
•Public Records• Deeds indicate Grantor, Grantee, Legal
Description, Dates, Mailing Address of Buyer, and Documentary Transfer Tax• Deeds of Trust (Mortgage), Notice of Default• Assessor’s Records will provide Assessor’s
Parcel Number (APN), Assessor’s Maps, Zoning and Property Characteristics• Maps of Record (Parcel Maps, Subdivision, etc.)
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SOURCES OF MARKET DATA (Con’t.)
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Documentary Transfer Tax
$1,039,090 / $500 = 2,078.18 2,078.18 X $0.55 = $1,143+/-
$1,143.00 / 0.0011 = $1,039,090(Shortcut Calculation)
Assessor May Receive a Preliminary Change of
Ownership (PCOR) - Discloses the Price and Terms
(Not Necessarily Public Info, May Need Owner’s Authorization)
SOURCES OF MARKET DATA (Con’t.)
•Multiple Listing Services (MLS)•Data Sources (NCD, DataQuick, SiteX,
RealQuest, LoopNet & CoStar)• The Internet (endless list)•Parties to the Transaction•Appraisal Office Data Files
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8.3 DATA SOURCES ON THE INTERNET
Websites of Government Agencies• General Data on the Economy• Regulatory Information affecting Real Estate,
Lending and AppraisalsWebsites of Industry Service Organizations• Comparable Sales• Cost and Construction• General and Other Sites
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DATA SOURCES ON INTERNET (Con’t.)
Websites of Trade Organizations•Appraisal Organizations•REALTORS®•Real Estate Educators• Industrial and Office Realtors•Architects
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8.4 APPRAISAL STATISTICAL CONCEPTS
Central Tendency•Mean = Average Value•Median = Middle Value•Mode = Most Frequently Occurring Value• Range = Difference Between High & Low• Standard Deviation• Measurement of How Values Differ From the
Mean of All Observations22
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STATISTICAL CONCEPTS (Con’t.)
Linear and Multiple Regression•Can Calculate and Illustrate
Relationships between Property Features and Property Prices•Used Increasingly by Appraisers•Can Suggest a Property Value.
Explored Further in Chapter #9 23
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CHAPTER SUMMARY
The Sales Comparison Approach is one of the three approaches used to estimate value. The main feature of the Sales Comparison Approach is the process of Analyzing Sales and Comparing them to the Subject property, based primarily on the Principle of Substitution.
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CHAPTER SUMMARY (Con’t.)
The sales comparison approach consists of four steps:• Research the sales.• Analyze the sales.• Adjust the sales for differences between
the sales and the subject property.• Arrive at a value estimate.
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IMPORTANT TERMS & CONCEPTSAdjustment Techniques Mean
Assessment Roll Median
Bracketing Mode
Buyer’s Motives Open-Market Transactions
Central Tendency Physical Characteristics
Comparable Sales Public Records
Comparable Sales Search Area Range
Competitive Property Sales Comparison Approach
Concessions Sales History
Linear and Multiple Regression Sample
Location Seller’s Motives
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IMPORTANT TERMS & CONCEPTSStandard Deviation Variables
Submarket Verification
Terms of Sale
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