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Understanding Qualitative Analyses

Understanding Qualitative Analyses. How many here made a qualitative decision this morning? Who decided that this program would be more beneficial to them than other programs?

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Understanding Qualitative Analyses

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  1. Understanding Qualitative Analyses

  2. How many here made a qualitative decision this morning? • Who decided that this program would be more beneficial to them than other programs? • Who took the time to analyze what percentage or dollar amount more benefit they would derive from this particular program?

  3. What is Qualitative Analysis? • Dictionary of Real Estate Appraisal 5th Edition: “The process of accounting for differences (such as between comparable properties and the subject property) that are not quantified; may be combined with quantitative analysis.” • 13th Edition: “In the sales comparison approach, the process of accounting for differences that are not quantified; usually follows quantitative analysis.”

  4. The Dictionary says Qualitative and Quantitative can be combined. Why? • We often don’t have the time or resources to fully develop the statistical analysis required for a true quantitative analysis. • RPP – USPAP Scope of Work Rule says the scope is acceptable when it “meets or exceeds what an appraiser’s peers’ actions would be”

  5. The 13th Edition says that qualitative usually follows quantitative. Why? • Comparing apples to apples. • Sales aren’t perfect, they frequently require reconciliation. • The word “usually” recognizes that they are not mutually exclusive techniques.

  6. Where do we use Qualitative Analysis? • Selecting Sales • Area Analyses • Highest and Best Use • Subject physical Features

  7. This session concentrates on how qualitative analyses fit within the sales comparison approach. We will identify the strengths and weaknesses of the methodology. We will discuss overcoming or reducing most of the weaknesses. We will discuss the myths and misunderstandings.

  8. What are the weaknesses of Qualitative Analyses in the Sales Comparison Approach? • Appears to be unsupported if not reported well • Reviewability • May be misunderstood • Under-recognized in practice

  9. What are the strengths of a well done Qualitative Analysis? • Quality comparison of elements of comparison • Reflects market behavior • Already used in every report to some extent • Easily understood if done well • Limits the likelihood of a conclusion outside the range of comparable sale prices

  10. Location Adjustment:

  11. Which Location is better? How much better (what would the adjustment be)? How do you measure the difference?

  12. Lot Shape Adjustment:

  13. Which Shape is better? How much better (what would the adjustment be)? How do you measure the difference?

  14. Improvement Quality Adjustment:

  15. Which Quality is better? How much better (what would the adjustment be)? How do you measure the difference?

  16. Would you use the above questions in qualitative or quantitative analyses? BOTH

  17. Research and analysis requirements are no different. The depth of analysis and information gathering is just as cumbersome between both methodologies.

  18. USPAP appraisal reporting standards (Standard 2) says nothing about development. They are separate functions. Restricted, summary and self-contained appraisal reports require the same development. All three require the same documentation, information must be contained in the file.

  19. Reporting Qualitative Analyses

  20. Simple Inferior/superior Example Industrial buildings: Subject: Average location, 4 doors Sale 1 Good location, 6 doors Sale 2 Average location, 4 doors Sale 3 Fair location, 2 doors

  21. Sale 1: $1,050,000 Superior Sale 2: $1,000,000 Similar Sale 3: $ 950,000 Inferior Implied Adjustments: Sale 1: -$50,000 Sale 2: $ 0 Sale 3: $50,000

  22. Which is more important, doors or location? To what proportion? If location is more important, then the implied adjustment for location is more than $25,000. This must be supported with market evidence.

  23. Refined Superior/Inferior This technique involves using symbols to indicate superior and inferior traits on a table. The table segregates different elements of comparison. Weighting can be shown with multiple symbols of the same type, but care must be taken to distinguish weight from degree

  24. Example

  25. Narrative Superior/Inferior analyses Describes in narrative the development, analyses and reasoning. Explains weighting and reasoning Explains why the element is superior or inferior. Demonstrates or describes trends and differences.

  26. When does qualitative analysis become quantitative? Most quantitative analysis includes some qualitative analysis. Most qualitative analysis requires some quantitative analysis.

  27. Weighted Average Method The weighted average methodology is much more detailed. Much more quantitative in practice. Developed to account for variances in both weighting and degree. Allows for scale selection Allows for a range of weighting options.

  28. Thank You! Timothy James Holzhauer, JD, MRICS, SR/WA (505)474-3068 timtheappraiser@comcast.net

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