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Training Session #4 the Sales Comparison Approach 8/15/2017 Local Government Services Division Nevada Department of Taxation Basic Steps of Sales Comparison Approach

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Training Session #4 the Sales Comparison Approach 8/15/2017 Local Government Services Division Nevada Department of Taxation Basic Steps of Sales Comparison Approach Training Session #4 The Sales Comparison Approach 8/15/2017 Local Government Services Division Nevada Department of Taxation Basic Steps of Sales Comparison Approach Identify the Appraisal Problem Define Scope of Work Collect and analyze data Select appropriate units of comparison Make reasonable adjustments to the comparables based on the market* Reconcile this information with the subject Subject property is compared to recently sold comparable properties In Chat Type "?" for question; "&" for go back; "#" to see more math When to Use Best for single family residences or vacant land Need enough sales Minimal adjustments Current market data Not applicable for ‘one-of-a- kind’ properties Chartwell Estate in Bel Air - $350 million listing In Chat Type "?" for question; "&" for go back; "#" to see more math Benefits of Sales Comparison Approach • Generally recognized as good appraisal practice • More objective -Relies less on opinion of appraisers Supportable: reflects the actions of the marketplace* Shows what buyers/sellers are actually doing In Chat Type "?" for question; "&" for go back; "#" to see more math Limitations Estimates of value are based on transactions in the past; must assume that market behaviors will continue Requires sufficient data Less reliable when market is volatile In Chat Type "?" for question; "&" for go back; "#" to see more math Economic Principles Principle of Substitution Principle of Supply & Demand Principle of Contribution In Chat Type "?" for question; "&" for go back; "#" to see more math Principle of Substitution A prudent buyer will pay no more for a property than for a comparable property with similar utility In Chat Type "?" for question; "&" for go back; "#" to see more math Principles of Supply & Demand The interaction of supply and demand factors determines property prices In Chat Type "?" for question; "&" for go back; "#" to see more math Principle of Contribution Principle of contribution: the value of a component is measured in terms of its contribution to the value of the whole The cost of a component does not always equal the value In Chat Type "?" for question; "&" for go back; "#" to see more math Contributory Value What's the value of a blue bathroom? In Chat Type "?" for question; "&" for go back; "#" to see more math Quiz Time! What principle determines property prices? A) Principle of Substitution B) Principle of Supply & Demand C) Principle of Contribution D) Principle of Anticipation In Chat Type "?" for question; "&" for go back; "#" to see more math The Appraisal Problem Identify the property Determine the property rights Define the purpose and intended use of the appraisal (for property taxation?) Specify the date of appraisal (as of..) Define the type of value (market, taxable, etc.) In Chat Type "?" for question; "&" for go back; "#" to see more math Property Analysis • HABU- highest and best use based on market Description of subject property Quality Architectural attractiveness Size/type of structure Amenities Functional Utility Accrued Depreciation In Chat Type "?" for question; "&" for go back; "#" to see more math Elements of Value DUST* Desirability – something someone wants Utility- the use to which the property can be put Scarcity- the supply of real estate available Transferability- if you cannot transfer the property, you have no sale In Chat Type "?" for question; "&" for go back; "#" to see more math Property Rights Generally, estimate market value in fee simple Possessory interest- right of possession and use of a property Water/air/mineral rights Leasehold interest- allows the rights of use & occupancy to a tenant under lease In Chat Type "?" for question; "&" for go back; "#" to see more math Market Value Definition: the most probable price which a property should bring in an open and competitive market assuming that: Both parties are well informed & motivated Willing buyer & seller There are no special concessions or financing (such as a family discount) A reasonable time is allowed for open exposure on the market. In Chat Type "?" for question; "&" for go back; "#" to see more math Criteria of a Comparative Sale Must be sold on the open market Neither party under duress Reasonable time on market Buyer/seller knowledgeable regarding use of property Consideration in cash or equivalent ‘Arms length’ transaction- buyer does not have a direct relationship w/ seller In Chat Type "?" for question; "&" for go back; "#" to see more math Best Comparable How do I know which comp is best?? Will be influenced similarly by: 4 Forces: Physical, Economic, Governmental, Social Least amount of adjustments Recent In Chat Type "?" for question; "&" for go back; "#" to see more math Sources for Sales Data Assessor records Deeds Lease records Published news sources Classified ads Real estate brokers/appraisers Attorneys and bankers Direct interview or survey with buyer/seller In Chat Type "?" for question; "&" for go back; "#" to see more math Questionable Sales Examples? Charitable Sales Governmental agencies Financial Institutions Estate Sales Forced Sales Uncertain title My brother-in-law In Chat Type "?" for question; "&" for go back; "#" to see more math The Sales Comparison Approach Elements of Comparison* Property Rights Conveyed Financing- Cash or Cash equivalent (No special concessions) Conditions of Sale Marketing Conditions (Time) Location Physical Characteristics In Chat Type "?" for question; "&" for go back; "#" to see more math Sales Comparison Method Elements of Comparison Conditions of Sale Comparable Sales: where buyer and seller are typically motivated, well-informed and acting in their own best interests Marketing Conditions (Time) Sale Dates of Comparables Value Affected by Other Recent Market Changes In Chat Type "?" for question; "&" for go back; "#" to see more math Sales Comparison Method Elements of Comparison Location Same Neighborhood Account for Differences in Location Physical Characteristics Size Shape Terrain In Chat Type "?" for question; "&" for go back; "#" to see more math The Neighborhood Definition of Neighborhood Natural Boundaries Physical Boundaries (Roads, Rivers, Railroad Lines) Neighborhood Names Political/Economic Boundaries Man-made boundaries In Chat Type "?" for question; "&" for go back; "#" to see more math Sales Comparison Method Elements of Comparison Zoning and Land-Use Restrictions (Police Power*) Public Restrictions Private Restrictions Availability, Capacity, and Proximity of Utilities Undeveloped land Site In Chat Type "?" for question; "&" for go back; "#" to see more math Units of Comparison Comparables should be affected by same factors/trends GRM/GIM*= number of years the property would take to pay for itself in gross rent Price per square foot(residential) Price per unit (usually commercial) Price per room In Chat Type "?" for question; "&" for go back; "#" to see more math Economic Units of Comparison Gross Rent Multiplier Gross Income Multiplier Typically used with monthly rents Divide the property value/sales Sales price divided by monthly price by gross annual income rent = GRM Effective Gross Income Monthly rent x GRM= Sales Multiplier (EGIM) = Sales Price Price /Effective gross income In Chat Type "?" for question; "&" for go back; "#" to see more math GIM Problem You are given the following. Calculate the GIM Sale Price= $200,000 Gross annual rental income= $20,000 Answer= $200,000/$20,000= 10 GIM=10 In Chat Type "?" for question; "&" for go back; "#" to see more math Quiz Time! https://www.surveymonkey. com/r/2CHSHQV In Chat Type "?" for question; "&" for go back; "#" to see more math Sales Comparison Method Adjustment Process Apply Adjustments to Comparables* Unit of Comparison = Sales Price ÷ Element of Comparison Ex. $/square foot, $/acre, $/room, $/unit, etc. In Chat Type "?" for question; "&" for go back; "#" to see more math Paired Sales Analysis Property A Property B Sales Price - $120,000 Sales Price- $125,000 Property Type - SFR Property Type - SFR Bedroom – 3 Bedroom – 3 Bathrooms – 2 Bathrooms – 3 Garage – 2 car Garage – 2 car What is the contributory value of 1 bathroom? In Chat Type "?" for question; "&" for go back; "#" to see more math Sales Comparison Approach Pay attention when making Adjustments Sales Grid Extracting Adjustments – If subject is better, add $ value to comp Net Adjustments In Chat Type "?" for question; "&" for go back; "#" to see more math Adjustment Process Adjustment may be made on lump sum or percentage basis Adjustments are made based on the item’s contributory value to property Adjustments are usually made for physical characteristics, location or time In Chat Type "?" for question; "&" for go back; "#" to see more math Typical Adjustments Financing Time Location Physical condition Components Acres Animal Units In Chat Type "?" for question; "&" for go back; "#" to see more math Sales Comparison Method Reconciliation Weighting Process Value Range before and After Adjustments Upper limit of Value Lower limit of Value Sales Grid and Market Data Grid In Chat Type "?" for question; "&" for go back; "#" to see more math Time Adjustment (Now-Then) = % Then % number of months= monthly adjustment for time Ex. Now=$150,000, Then= $129,000, 6 months (150000-129000)/129000= 16.28% .1628/6= 2.7% In Chat Type "?" for question; "&" for go back; "#" to see more math Quiz Time! Time Adjustment Quiz In Chat Type
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