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Chapter 9. ANALYZING AND ADJUSTING COMPARABLE SALES. CHAPTER TERMS AND CONCEPTS. Automated valuation model (AVM) Comparison process Date of sale Depreciated cost method Direct comparison method Economic unit of comparison Elements of comparison method Gross income multiplier (GIM)
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Chapter 9 ANALYZING AND ADJUSTING COMPARABLE SALES
CHAPTER TERMS AND CONCEPTS • Automated valuation model • (AVM) • Comparison process • Date of sale • Depreciated cost method • Direct comparison method • Economic unit of comparison • Elements of comparison method • Gross income multiplier (GIM) • Linear regression • Location elements • Lump-sum dollar adjustment • Matched pair • Multiple regression • Percentage adjustment • Physical elements • Physical unit of comparison • Sales adjustment grid • Sales graph • Terms and conditions of sale • Total property comparison • Unit of comparison • Value range
LEARNING OUTCOMES Name the four elements of sales comparison. List the three rules for making adjustments. Name the three types of adjustments most commonly used. Explain how a value conclusion is reached.
ELEMENTS OF COMPARISON Terms and Conditions of Sale Time of Sale Location Physical Features
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
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
RULES FOR MAKING ADJUSTMENTS • Adjust the Sale to the Subject • Use Market-Derived Adjustments • Adjust in the Proper Order • Terms/conditions • Time • Location • Physical features
TYPES OF SALES ADJUSTMENTS • Lump Sum Dollar • Percentage • Units of Comparison
The Adjustment Process Figure 9-2
URAR FORM ANALYSIS GRID Figure 9-4
UNITS OF COMPARISON SALES ADJUSTMENTS • Total Property • Price of similar sale • May involve ranking the sales • Physical Units • Price per square foot, price per acre • Price per room • Price per dwelling unit • Economic Units • Price per buildable dwelling unit • Price per developable building area • Gross income multipliers
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
USING MATCHED PAIRS $10,000÷200 SF = $50 SF Change • Evidence • 2,500 SF • 2,700 SF • Calculation: • Sale Size Price • B= 2,700 SF $280K • A= 2,500 SF$270K • Difference 200 SF $10 K • Adjustment for Size:
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 • 440 SF X $33.50 per SF = $14,470
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
Using Linear Regression to Analyze Sales Figure 9.8
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 • Review the Entire Approach • Comparability • Activity levels • Adjustment accuracy • Statistical limits • Lagging the market • Motivation
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 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.