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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) - PowerPoint PPT Presentation
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ANALYZING AND ADJUSTING COMPARABLE SALES
Chapter 9
CHAPTER TERMS AND CONCEPTS
Automated valuation model(AVM)Comparison processDate of saleDepreciated cost methodDirect comparison methodEconomic unit of comparisonElements of comparison
methodGross income multiplier (GIM)Linear regressionLocation elementsLump-sum dollar adjustment
Matched pairMultiple regressionPercentage adjustmentPhysical elementsPhysical unit of comparisonSales adjustment gridSales graphTerms and conditions of saleTotal property comparisonUnit of comparisonValue range
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LEARNING OUTCOMES
1. Name the four elements of sales comparison.
2. List the three rules for making adjustments.
3. Name the three types of adjustments most commonly used.
4. Explain how a value conclusion is reached.
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Which is more attractive to buyers?
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ELEMENTS OF COMPARISON
Terms and Conditions of Sale
Time of Sale
Location
Physical Features
Elements of Comparison
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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
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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
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RULES FOR MAKING ADJUSTMENTS
Adjust the Sale to the SubjectUse Market-Derived AdjustmentsAdjust in the Proper Order
Terms/conditions Time Location Physical features
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TYPES OF SALES ADJUSTMENTS
• Lump Sum Dollar
• Percentage
• Units of Comparison
The Adjustment Process
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Figure 9-2
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URAR FORM ANALYSIS GRID
Figure 9-4
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UNITS OF COMPARISON SALES ADJUSTMENTS
Total Property Price of similar sale May involve ranking the salesPhysical Units Price per square foot, price per acre Price per room Price per dwelling unitEconomic Units Price per buildable dwelling unit Price per developable building area Gross income multipliers
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GRAPHING THE SALES
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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
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USING MATCHED PAIRS Evidence
o 2,500 SFo 2,700 SF
Calculation:o Sale Size Priceo B= 2,700 SF $280Ko A= 2,500 SF $270Ko Difference 200 SF $10 K
Adjustment for Size:
$10,000÷200 SF
= $50 SF Change
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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
o 440 SF X $33.50 per SF = $14,470
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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
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ADJUSTING FOR SALE TERMS OR CONDITIONS
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Using Linear Regression to Analyze Sales
Figure 9.8
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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
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ARRIVING AT AN INDICATED VALUE
Review the Entire Approach Comparability Activity levels Adjustment accuracy Statistical limits Lagging the market Motivation
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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
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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.