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The Student Handbook toTHE APPRAISAL OF REAL ESTATE

Chapter 18

Adjustments and Analytical Techniques in the Sales Comparison Approach

Chapter 18 2Student Handbook to THE APPRAISAL OF REAL ESTATE

Elements of Comparison Real Property Rights Conveyed

Life estates Leased fee, leasehold, subleasehold Mineral rights

Financing Terms Low interest rate mortgage assumptions Conditional sales contracts Purchase-money mortgages Seller-paid concessions

Chapter 18 3Student Handbook to THE APPRAISAL OF REAL ESTATE

Conditions of sale Motivated sellers Motivated buyers Related parties Sales of adjacent properties Sales with only one buyer or only one seller

Expenditures immediately after purchase The sale price of the property plus the new roof

or new HVAC system The sale price plus the cost of demolition of the

building

Chapter 18 4Student Handbook to THE APPRAISAL OF REAL ESTATE

Market conditions adjustments Compensate for changes in the market from the

date of sale to the effective date of appraisal. Make the value opinion equal to the effective

date. Analyze sales and re-sales of the same properties.

Location adjustments Compensate for differences in the locational

attributes of the subject vs. the comparables. Adjustment can be based on land values.

Chapter 18 5Student Handbook to THE APPRAISAL OF REAL ESTATE

Physical Characteristics Size of site and building Condition, quality, and age of improvements Property amenities Functional utility

Economic Characteristics More or less rent More or less expenses

Use/Zoning Non-Realty Components of Value

Chapter 18 6Student Handbook to THE APPRAISAL OF REAL ESTATE

Quantitative Adjustments Data Analysis Techniques Paired Data Analysis – Sales with and without a

feature Statistical Analysis – Many sales with and

without a feature Graphic Analysis – Many sales presented in a

graphic presentation

Chapter 18 7Student Handbook to THE APPRAISAL OF REAL ESTATE

Table 18.1 Agricultural Land Sales

Sale Price Acres Price per acre

1 $400,000 70 $5,714

2 $500,000 90 $5,556

3 $550,000 103 $5,340

4 $600,000 110 $5,455

5 $700,000 135 $5,185

6 $775,000 150 $5,167

7 $805,233 155 $5,195

8 $896,543 175 $5,123

9 $985,700 195 $5,055

10 $1,000,000 200 $5,000

11 $1,256,500 230 $5,463

12 $1,125,890 250 $4,504

13 $1,258,900 285 $4,417

14 $1,358,000 310 $4,381

15 $1,580,000 366 $4,317

Chapter 18 8Student Handbook to THE APPRAISAL OF REAL ESTATE

Figure 18.1 Price per Acre

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

70 90 103 110 135 150 155 175 195 200 230 250 285 310 366

Numbers of Acres

Price Per Acre

Chapter 18 9Student Handbook to THE APPRAISAL OF REAL ESTATE

Cost analysis. Depreciated cost can be used to support adjustment rates in the sales comparison approach.Screened PorchArea Size Cost/sq. ft. Cost Deprec. % $ deprec. Net value $/sq. ft.Scr. porch 300 $25.00 $7,500 6% = $450 $7,050 $23.50

BasementArea Size RCN/sq. ft. RCN Deprec. $ deprec. Net value $/sq. ft.Basement 2000 $25.00 $50,000 15% = $7,500 $42,500 $21.25 Finishing 1000 $30.00 $30,000 25% = $7,500 $22,500 $22.50

Chapter 18 10Student Handbook to THE APPRAISAL OF REAL ESTATE

Capitalization of Rent Differences Gross rent multipliers Direct capitalization of a single year’s income

Sequence of Adjustments The logic behind the order

Chapter 18 11Student Handbook to THE APPRAISAL OF REAL ESTATE

Sequence of Adjustments

$100,000$100,000 + 10% = +$10,000Adjustment 1$100,000 - 10% = -$10,000Adjustment 2$100,000 + 10% = +$10,000Adjustment 3$100,000 - 10% = -$10,000Adjustment 4

$100,000

$100,000 x 110% = $110,000Adjustment 1$110,000 x 90% = $99,000Adjustment 2$99,000 x 110% = $108,900Adjustment 3

$108,900 x 90% = $98,010Adjustment 4

Chapter 18 12Student Handbook to THE APPRAISAL OF REAL ESTATE

Qualitative Analysis Relative Comparative Analysis

Narrative discussion of issues usually just listing the data

Discussion of what is inferior and what is superior

Chapter 18 13Student Handbook to THE APPRAISAL OF REAL ESTATE

Table 18.2 Ranking Analysis

Address Bdr. Bath F/H Legal Acre Garage Lvls. Bsmt.Fin.

Bsmt. GLA sq. ft. $ Price $/sq. ft.1 773 Coventry Way 5 2/1 Brookshire  0.35 3 - car att. 2 Y Y 2,540 245,000 $962 2429 Windsor Drive 4 2/2 Brookshire  0.38 3 - car att. 2 Y Y 2,584 242,500 $943 2795 Brookshire Parkway 4 3/2 Brookshire  0.35 2 - car att. 2 Y Y 2,254 234,900 $1044 2207 Windsor Drive 4 2/1 Brookshire  0.35 3 - car att. 2 Y N 2,677 220,000 $825 888 DuchessDrive 4 3/2 Brookshire  0.38 2 - car att. 2 Y N 2,268 217,500 $96

6 890 Windsor Drive 3 2/1 Brookshire  0.30 2 - car att. 2 Y N 2,612 200,000 $777 895 Brookshire Court 4 3/2 Brookshire  0.25 2 - car att. 2 N N 2,429 191,000 $798 795 Kent Parkway 4 2/1 Brookshire  0.28 2 - car att. 2 N N 2,156 179,900 $839 795 Hampshire Drive 2 2/1 Brookshire  0.23 2 - car att. 1 N N 2,122 178,000 $8410 695 Brookshire Parkway 3 2/1 Brookshire  0.22 2 - car att. 1 N N 1,822 170,000 $9311 555 Brookshire Parkway 3 3/2 Brookshire  0.21 2 - car att. 1 N N 2,016 167,500 $83

- Subject 4 2/1 Brookshire  2 - car att. 2 Y N 2,400 n/a

Chapter 18 14Student Handbook to THE APPRAISAL OF REAL ESTATE

Reconciliation Evaluating adjustments Use of comparison and real property interest

Chapter 18 15Student Handbook to THE APPRAISAL OF REAL ESTATE

Problems

Suggested solutions begin on page 365.

Chapter 18 16Student Handbook to THE APPRAISAL OF REAL ESTATE

Problems 11 and 12

Problem 11Sale Price Frontage Depth GBA Sq. Ft. $/Front Ft. $/Sq. Ft. Land$/Sq. Ft./GBA

1 1,597,530$ 335 489 45,000 $4,768.75 $9.75 $35.502 1,358,987$ 300 410 38,500 $4,529.96 $11.05 $35.303 1,258,963$ 400 400 35,000 $3,147.41 $7.87 $35.974 1,112,598$ 245 333 32,000 $4,541.22 $13.64 $34.775 1,000,000$ 275 405 29,000 $3,636.36 $8.98 $34.486 987,654$ 370 415 28,700 $2,669.34 $6.43 $34.41

Subject -$ 444 455 28,000 Average 35.00$

28,000 x 35.00$ = 980,000$

Problem 12Sale Price Frontage Depth GBA Sq. Ft. $/Front Ft. $/Sq. Ft. Land$/Sq. Ft./GBA

1 125,987$ 200 246 15,000 $629.94 $2.56 $8.402 135,897$ 210 250 18,000 $647.13 $2.59 $7.553 145,800$ 200 285 22,000 $729.00 $2.56 $6.634 99,000$ 195 200 20,000 $507.69 $2.54 $4.955 128,589$ 200 255 24,500 $642.95 $2.52 $5.256 175,000$ 200 339 25,000 $875.00 $2.58 $7.00

Subject -$ 200 275 18,000 Mean averages 671.95$ 2.56$ 6.63$ Std. deviation 122.22$ 0.03$ 1.33$ % std deviation 18.19% 0.99% 20.06%