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
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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
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• 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
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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
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Principle of Substitution
Principle of Supply & Demand
Principle of Contribution
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A prudent buyer will pay no more for a property than for a comparable property with similar utility
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The interaction of supply and demand factors determines property prices
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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
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What's the value of a blue bathroom?
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What principle determines property prices? A) Principle of Substitution B) Principle of Supply & Demand C) Principle of Contribution D) Principle of Anticipation
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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.)
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• HABU- highest and best use based on market Description of subject property Quality Architectural attractiveness Size/type of structure Amenities Functional Utility Accrued Depreciation
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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
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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
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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.
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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
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How do I know which comp is best??
Will be influenced similarly by: 4 Forces: Physical, Economic, Governmental, Social Least amount of adjustments Recent
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Assessor records Deeds Lease records Published news sources Classified ads Real estate brokers/appraisers Attorneys and bankers Direct interview or survey with buyer/seller
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Examples? Charitable Sales Governmental agencies Financial Institutions Estate Sales Forced Sales Uncertain title My brother-in-law
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Elements of Comparison* Property Rights Conveyed Financing- Cash or Cash equivalent (No special concessions) Conditions of Sale Marketing Conditions (Time) Location Physical Characteristics
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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
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Location Same Neighborhood Account for Differences in Location Physical Characteristics Size Shape Terrain
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Definition of Neighborhood Natural Boundaries Physical Boundaries (Roads, Rivers, Railroad Lines) Neighborhood Names Political/Economic Boundaries Man-made boundaries
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Zoning and Land-Use Restrictions (Police Power*) Public Restrictions Private Restrictions
Availability, Capacity, and Proximity of Utilities Undeveloped land Site
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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
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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
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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
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https://www.surveymonkey. com/r/2CHSHQV
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Apply Adjustments to Comparables*
Unit of Comparison = Sales Price ÷ Element of Comparison
Ex. $/square foot, $/acre, $/room, $/unit, etc.
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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?
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Pay attention when making Adjustments Sales Grid Extracting Adjustments – If subject is better, add $ value to comp Net Adjustments
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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
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Financing Time Location Physical condition Components Acres Animal Units
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Weighting Process Value Range before and After Adjustments Upper limit of Value Lower limit of Value Sales Grid and Market Data Grid
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(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%
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Time Adjustment Quiz
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Questions?
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In Chat Type "?" for question; "&" for go back; "#" to see more math COMPARATIVE SALES (LUMP-SUM ADJUSTMENTS) CS1
You are to estimate the value of a subject property using the sales comparisons approach. The subject property has three bedrooms, one bath, an attached double garage, and no fireplace. Heating is forced hot air.
A search reveals that there are five recent sales of houses in the neighborhood similar in age, construction, and amenities to the subject.
Sale 1 is a four-bedroom, two-bath residence with an attached double garage. It has a large fireplace and hot water heat. It sold two years ago for $161,250.
Sale 2 is a three-bedroom, one bath residence with an attached single-car garage but no fireplace. Heating is forced hot air. It sold recently for $155,900.
Sale 3 is a three-bedroom, two-bath residence with an attached double garage and average fireplace. It has hot water heat. It sold two years ago for $156,750.
Sale 4 is a three-bedroom, two-bath residence with a single-car garage. It has hot water heat and a large fireplace. In addition there is surplus land included in the sale with an estimated value of $8,200. It recently sold for a total of $163,300.
Sale 5 is a four-bedroom, two bath residence with an attached double garage. It has hot water and a large fireplace. The sale price included personal property worth $7,500. It sold one year ago for a total price of $164,000. average fireplace $2,000 large fireplace $2,400 a single-car garage $4,300 double-car garage $7,250 forced hot air heat $12,250 hot water heat $12,800 four bedrooms $6,000 extra bath $2,500
Sales indicate that prices have increased 5 percent per year for the last five years.
PROBLEM:
Prepare a lump-sum adjustment chart and estimate the value of the subject property.
Excel CS 1 Subject Sale No. 1 Sale No. 2 Sale No. 3 Sale No. 4 Sale No. 5
Sales Price Contents
Sales Date
Time (5%/Year)
Adj Sales Price
Heating
Garage
Bath
Bedroom
Extra Land
Fireplace Total Adjustments Adjusted Sales Price CASE PROBLEM 2 LUMP-SUM ADJUSTMENTS, VALUE ESTIMATE You are appraising a single-family dwelling. The house is thirty years old and located in a neighborhood of favorable amenities. The dwelling is brick. It has four rooms and a bath on the first floor, four rooms and two baths on the second floor, and one room and a bath on the third floor. Condition is average, with the original kitchen.
You have found five comparable sales of nearby properties and set up a rating pattern for comparison as follows:
Sale #1 Sale #2 Sale #3 Sale #4 Sale #5
Construction Brick Frame Frame Frame Brick First floor rooms 4 4 3 4 4 First floor baths 1 1 1 1 None Second floor rooms 4 4 4 4 3 Second floor baths 1 2 2 1 2 Room & bath on 3rd floor Yes Yes No Yes No
Remodeled kitchen Yes No Yes No No Date of sale Current 1 year 3 years 1 year 2 years
Sale Price $180,000 $160,000 $152,000 $152,000 $150,000
Condition Superior Average Average Inferior Average
Lot Equal Equal Equal Inferior Equal ADJUSTMENTS You believe current market prices are 5 percent higher than they were last year and two years ago, but 10 percent higher than three years ago. Brick construction sells for $5,000 more than frame. Sale #1 is $2,200 superior in overall condition; sale #4 is $2,200 inferior In overall condition and another $2,000 inferior as to the lot. The lack of a fourth room on either floor you rate as a $6,000 differential, and a third-floor room and bath as a $6,500 differential. An extra bath is rated as a $3,500 differential. A remodeled kitchen is rated as a $6,500 differential.
PROBLEM: Prepare an adjustment chart and estimate the value of the subject property indicated by the above. CS 2
Subject Sale No.1 Sale No.2 Sale No.3 Sale No.4 Sale No.5
SalesPrice Contents
SalesDate Time (5%or 10%/Year)
Adj Sales Price
Construction
Condition
Lot
1st Flr Rooms
2nd Flr Rooms 3rd Floor Rm/Bath
1st Flr Bath
2nd Flr Bath
Kitchen Total Adjustments AdjustedSales Price Case Problem 3 PERCENTAGE ADJUSTMENTS: INDUSTRIAL PROPERTY
Subject Property:
222 Industrial Street: One-story masonry building, thirteen years old, in fair condition. Concrete slab floor, one restroom. Common brick on block walls. Flat build- up tar and gravel roof, wood deck. Building area 8,000 square feet including 800 feet of office space. Lot size 200’ x 300’.
Comparable Sale #1:
307 West Factory Road. One-story masonry building about twenty-three years old, in good condition and same quality and type of construction as subject property. Location is similar to subject. Building 10,000 square feet including 1,000 square feet of office space; one restroom. Lot size 200’ x 300’, Date of sale: two years ago for $285,000.
Comparable Sale #2:
414 Industrial Street. One-story masonry building, thirteen years old, fair condition, common brick on block walls, concrete floor, steel windows, plate glass front; one restroom. Building area 8,000 square feet including 800 square feet of office space. Location is similar to subject. Lot size 175’ x 300’. Date of sale: one-and-a-half years ago, for $232,400. CASE PROBLEM 3 PERCENTAGE ADJUSTMENTS: INDUSTRIAL PROPERTY
(continued)
Comparable Sale #3:
317 Railroad Street. One-story masonry building, thirteen years old, poor condition, concrete slab floor. Common brick on block walls, flat built-up tar and gravel roof, wood deck, one restroom. Building area 12,000 square feet including 1,300 square feet of office space. Lot size 225’ x 300’. Location 3 percent better than subject property. Date of sale: six months ago, for $350,000.
Make the following assumption about adjustments:
Condition: Good sells 5 percent higher; Poor, sells 5 percent lower Age: 2 percent loss every ten years Vacant land prices have not increased in the last two years. All land is valued at $1.00 per square foot. In the past three years, depreciated values have increased 0.5 percent (.005) per month.
PROBLEM:
Prepare a comparative sales adjustment chart and estimate the value of the subject property. CS 3 Content s Subject Sale No. 1 Sale No. 2 Sale No. 3 Sales Price
Land Value
Sale Price: Bldg
SF Bldg Area Land: 0
Price/SF Bldg Bldg: -
Date Sold Property: $ -
%Time Adj
$ Time Adj
Time Adj /SF
Condition
Age
Location Total Adjustments Adjusted Sales Price CASE PROBLEM 4 GROSS RENT MULTIPLIERS
In assessing a commercial building, you note the following data: Comparative Sales Gross Annual Income Sale Price 1 $12,000 $100,000 2 $17,000 $150,000 3 $13,000 $110,000 Subject $15,500
The buildings have approximately the same operating pattern and expense ratios, and are similar in condition and location.
PROBLEM: What is the indicated value of the subject property using the gross rent multiplier?
(Note that as the annual income increases the GRMs also increase.) CS 4
SaleComp Sales Price Gross Annual Income Annual GRM Contents
1 $100,000 $12,000
2 $150,000 $17,000
3 $110,000 $13,000
Subject's Gross Annual Income $15,500
Subject's Estimated GRM
Indicated Value Rounded: CS5
OFFICEBLDG Sale Price /SFof Contents GrossRent Date SalePrice GBA NRA Income Multiplier Location Other Sale GBA NRA
1 6/01 $550,000 37,500 30,450 $107,184 Comparable Same
2 7/01 $647,000 42,000 33,516 $125,685 Comparable Larger
3 10/01 $250,000 18,500 14,245 $46,400 SlightlySuperior Smaller
SUBJECT 38,500 30,400 $113,525
APARTMENT BLDG Sale PricePer Numberof Date SalePrice GBA Number ofUnits Rooms Location Other GrossRent Sale Income SFGBA Unit Room GRM
1 7/01 $150,000 6,500 12 42 $24,000 Comparable Same
2 8/01 $300,000 10,500 20 72 $46,000 Comparable Larger
3 10/01 $85,000 4,500 6 24 $14,500 SlightlySuperior Smaller
SUBJECT 10,000 18 67 $40,500 HOMEWORK CASE 6 SALES COMPARISON APPROACH (LUMP-SUM)
The subject property is a one-story brick veneer, single-family residence, located on a 100’ x 300’ lot. The house has six rooms, two baths, and a one-car garage. It is equipped with a standard hot water heater and built-in kitchen, including oven, range top, and exhaust fan. After inspection it is determined that the location is good and the over-all property condition is excellent.
Comparable sale 1 is a one-story brick veneer, single-family residence, located on a 75’ x 300’ lot. The house has six rooms and two baths and is equipped with a standard hot water heater and exhaust fan. After inspection it is determined that the location is fair and the over-all property condition is good. The property sold one month ago for $146,000.
Comparable sale 2 is a one-story frame, single-family residence, with a two-car garage, located on a 100’ x 300’ lot. The house has six rooms, one bath, and a full basement and is equipped with a standard hot water heater and built-in kitchen, including oven, range-top, and exhaust fan. There is a brick fireplace in the den. After inspection it is determined that the location is good and the over-all property condition is excellent. The property sold last month for $157,500.
Comparable sale 3 is a one-story brick veneer, single-family residence, located on a 125’ x 300’ lot. The house has seven rooms and two baths and is equipped with a standard hot water heater and exhaust fan. After inspection it is determined that the location and over-all property conditions are both excellent. The property sold two months ago for $158,000. HOMEWORK CASE PROBLEM 6 SALES COMPARISON APPROACH (LUMP-SUM)
(continued)
Comparable sale 4 is a one-story brick veneer, single-family residence located on a 100’ x 300’ lot. The house has six rooms and two baths and has a one-car garage. It is equipped with a standard hot water heater and built-in kitchen, including oven, range- top, and exhaust fan. After inspection it is determined that the location is good and over- all property condition is excellent. The property sold three months ago from father to son for $155,000.
After careful analysis of market conditions, the following adjustments are believed to be in order: Time adjustment: 5 percent per year (no adjustment for three months or less) Lot size: $1,000 for each 25-foot increment of frontage Location: $2,000 per classification (fair, good, excellent) Quality: Brick veneer is $3,500 better than frame Size: $3,000 per room Condition: $2,500 per classification Equipment: Heater and fan are standard; oven and range, add $650 Basement: $3,500 for full basement PROBLEM: Bath: $3,200 per bath Fireplace: $2,200 per fireplace Prepare an adjustment chart and determine the value of the subject property. Garage: One-car adds $4,500; two-car adds $6,000 CS 6
Subject Sale No.1 Sale No.2 Sale No.3 Sale No.4 Sales Price
Time
Lot Size
Location
Quality
Size Property:
Condition
Equipment
Basement
Bath
Fireplace
Garage Total Adjustments Family Adjusted Sales Price HOMEWORK CASE PROBLEM 7 SELLING PRICE PER ROOM: GROSS RENT MULTIPLIER
You are appraising an apartment building that contains the following units:
Rooms Units Monthly Market Rent/Unit
3 ½ 20 $675.00 4 15 $685.00 4 ½ 12 $710.00 The 4 ½ - room units have two baths.
You have discovered three comparable properties:
Sale 1 sold recently for $1,708,000. At the time of the sale the contract rent for the property was $10.00 per unit per month less than market rent. The building contains thirty units of 3 ½ , 4, and 4 ½ rooms, similar to the subject property, for a total of 118 rooms. The actual rental income was $247,000 at the time of sale.
Sale 2 sold recently for $2,215,200.
No. of No. of Monthly Market Rent Rooms per Unit Units per Unit 3½ 40 $675.00
No second bath.
Sale 3 sold recently for $1,884,400.
No. of No. of Monthly Market Rent Rooms per Unit Units per Unit 4 18 $685.00 No5 second bath in either type. 18 $725.00
PROBLEM:
Using both (1) selling price per room and (2) gross rent multiplier, estimate the value of the subject property. CS 7
Subject Sale No.1 Sale No.2 Sale No.3 SalesPrice
AnnualPGI
GRM
No.Rooms
No.Units
Rooms/Unit Property: $ - if per room
Baths/Unit Property: $ - by GRM Annual PGI/Room
Sale Price/Room