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ANALYZING AND ADJUSTING COMPARABLE SALES
Chapter 9
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
2
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.
3
Which is more attractive to buyers?
4
5
ELEMENTS OF COMPARISON
Terms and Conditions of Sale
Time of Sale
Location
Physical Features
Elements of Comparison
6
7
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
8
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
9
RULES FOR MAKING ADJUSTMENTS
Adjust the Sale to the SubjectUse Market-Derived AdjustmentsAdjust in the Proper Order
Terms/conditions Time Location Physical features
10
TYPES OF SALES ADJUSTMENTS
• Lump Sum Dollar
• Percentage
• Units of Comparison
The Adjustment Process
11
Figure 9-2
12
URAR FORM ANALYSIS GRID
Figure 9-4
13
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
14
GRAPHING THE SALES
15
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
16
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
17
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 costo 440 SF X $33.50 per SF = $14,470
18
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
19
ADJUSTING FOR SALE TERMS OR CONDITIONS
20
Using Linear Regression to Analyze Sales
Figure 9.8
21
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
22
23
ARRIVING AT AN INDICATED VALUE
Review the Entire Approach Comparability
Activity levels
Adjustment accuracy
Statistical limits
Lagging the market
Motivation
24
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
25
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.