AG HBU Part 2 Types and Levels of Market Analysis Flashcards
For each of the following characteristics, state whether it best describes a market study, a marketability analysis, or a marketability study:
Focuses on a specific property
Includes only Steps 2–5 of the six-step process
Addresses a specific location
Addresses a general area
Macro considerations
Micro considerations
Focuses on a specific property: Marketability analysis
Includes only Steps 2–5 of the six-step process: Market study
Addresses a specific location: Marketability analysis
Addresses a general area: Market study
Macro considerations: Market study
Micro considerations: Marketability analysis
Course handbook guidance: Part 2, Characterizing Market Analysis by Depth of Analysis, items I.A–B and II.A–C
What is the distinction between primary data and secondary data?
A. Primary data addresses current market conditions; secondary data addresses future market conditions.
B. Primary data is gathered first-hand for a particular assignment; secondary data is not gathered specifically for the particular assignment.
C. Primary data relates to the immediate market area; secondary data relates to the general market area.
D. Primary data relates to the subject specifically; secondary data relates to the market in general.
*B. Primary data is gathered first-hand for a particular assignment; secondary data is not gathered specifically for the particular assignment.
Course handbook guidance: Part 2, Characterizing Market Analysis by Depth of Analysis, item II.C
If there is no pent-up demand in a market and there is no artificial demand (artificially induced occupancy), which of the following is most likely?
A. Currently occupied space equals current demand.
B. Demand is flat.
C. New supply (construction) is feasible.
D. Supply and demand are in balance.
Course handbook guidance: Part 2, Characterizing Market Analysis by Depth of Analysis, item II.F
*A. Currently occupied space equals current demand.
Course handbook guidance: Part 2, Characterizing Market Analysis by Depth of Analysis, item II.F
For each of the following, state whether it best relates to an inferred analysis or a fundamental analysis:
A demand projection
A demand forecast
A study of current and historical occupancy at competing properties
Interviews of agents regarding current market conditions
Quantified predictions of future supply AND future demand
A demand projection: Inferred analysis
A demand forecast: Fundamental analysis
A study of current and historical occupancy at competing properties: Inferred analysis
Interviews of agents regarding current market conditions: Inferred analysis
Quantified predictions of future supply AND future demand: Fundamental analysis
Course handbook guidance: Part 2, Characterizing Market Analysis by the Way Demand Is Measured, items I and II
Which of the following is NOT one of the fundamental forces (generators) of real estate demand?
A. average household size
B. employment
C. household income
D. population
*A. average household size
Course handbook guidance: Part 2, Characterizing Market Analysis by the Way Demand Is Measured, item II.B
Which of the fundamental forces of demand is generally considered the engine that drives changes in the other forces of demand?
A. average household size
B. employment
C. household Income
D. population
- B. employment
Course handbook guidance: Part 2, Characterizing Market Analysis by the Way Demand Is Measured, item II.B
For each of the following scenarios, select the appropriate level of marketability study (Level A, Level B, or Level C). Hint: see 2.6 Exhibit in the Course Handbook.
Small, complex property in a stable market
Large, simple property in an unstable market
Small, simple property in a stable market
Large, simple property in a stable market
Large, complex property in a stable market
Small, simple property in an unstable market
Large, complex property in an unstable market
Small, complex property in a stable market: B
Large, simple property in an unstable market: C
Small, simple property in a stable market: A
Large, simple property in a stable market: B
Large, complex property in a stable market: C
Small, simple property in an unstable market: B
Large, complex property in an unstable market: C
Course handbook guidance: Part 2, Levels of Market Analysis, item V
You are appraising a 10-acre corner property fronting on two main thoroughfares. The site is zoned for townhouse development and can support up to 100 townhouses. The other three corners of the intersection— Sites A, B, and C—have been under development for some time with similar townhouses and have each reported a sales pace of about two units per month. No recent community events or announcements have occurred that would change future market conditions.
Suggest two ways of interpreting the sales pace for the subject property.
- If the three best comparable competitive projects are experiencing two sales per month, one conclusion could be that the subject property will achieve two sales per month.
- The three comparable projects are absorbing six sales per month. Without any evidence that this location can absorb more than six sales per month, the subject property would get an equal share of the six monthly sales—not two sales per month but only 1.5 sales per month.
You are appraising a 10-acre corner property fronting on two main thoroughfares. The site is zoned for townhouse development and can support up to 100 townhouses. The other three corners of the intersection— Sites A, B, and C—have been under development for some time with similar townhouses and have each reported a sales pace of about two units per month. No recent community events or announcements have occurred that would change future market conditions.
Suppose that there is evidence of a large increase in households occurring in the local market over the next five years. Moreover, segmentation of this demand into buyers who would be expected to occupy townhouses similar to the subject property suggests that this will double demand for townhouses in the market area. Given these forecasts derived from fundamental demand analysis, the appraiser could forecast that the subject property will sell three townhouses per month after a six-month ramp-up in demand.
Graphically, the interpretation of the data would look like this:
You are appraising a two-story, 45,000-square-foot office building within XYZ community. The property was developed 10 years ago for multi tenant occupancy but has been owner-occupied for about five years. Your investigation of the market revealed the following data:
Existing office space: 8,312,500 sq. ft.
Total number of buildings: 95
Average building size: 87,500 sq. ft.
Vacant space: 498,750 sq. ft.
Vacancy rate: 6.0%
Total office employment: 29,000
Average growth In office employment —last 3 years: ±3,600 per year
Average net absorption—last 3 years: 900,000 sq. ft. per year
A. Is the information provided adequate for a Level A marketability analysis? What additional information could be developed?
B. Is this a Level A marketability analysis? Why/Why Not?
C. How long can it be inferred until the XYZ market reaches 95% occupancy, assuming no new construction is completed?
D. How much space does the average office worker occupy?
A: It is probably adequate but additional data could include trends in office building permits, office rental rates, and office vacancy rates as well asunder-construction properties, etc.
B: It is not a Level A marketability analysis because it lacks analysis and conclusions. The purpose of a marketability analysis is to draw conclusions regarding the performance of a particular property or property class.
C: 8,312,500 × 0.05 = 415,625 sq. ft. vacant at 95% occupancy 498,750 sq. ft. currently vacant – 415,625 sq. ft. = 83,125 sq. ft. to be absorbed 83,125 sq. ft. ÷ 900,000 sq. ft. absorbed/year = 0.09 year = ± 1 month
Note. The occupancy and absorption results appear reliable because
the market is close to 95% occupancy, the property is relatively small in relation to the market, and it has few tenants or is owner-occupied. If an assignment does not meet these criteria, a Level A marketability analysis is not adequate. It will not produce reliable results, and the appraiser must continue to the next level, a Level B marketability analysis.
D: (8,312,500 – 498,750) ÷ 29,000 = ±269 sq. ft. per office worker
Selecting the Appropriate Method with which to Measure Demand
Identify the type of demand analysis—inferred or fundamental—required to meet the client’s needs and perform an acceptable appraisal in each situation described below.
A. Population and employment forecasts are needed to complete the assignment.
B. The analysis can be completed successfully by checking the occupancy rate of selected comparable properties.
C. Information is required for the following variables:
A general description of the city and neighborhood
A specific analysis of the property linkages, market absorption from secondary data, and vacancy rates from comparable properties
A projection of net operating income (IO) supported by sales data from comparable properties and secondary data
D. In for the following variables:
Analysis of urban growth determinants
Field research on all competitive properties
Detailed competitive property ratings
Present value analysis of probable use based on forecasts
A: Fundamental
B: Inferred
C: Inferred
D: Fundamental
Choose the level of marketability analysis and the type of demand analysis that should be appropriate in each case and explain the reasons for your choices.
Case A
A 200-unit, eight-year-old apartment complex is located in a city where the typical complex size is 50 units. The property is in a stable neighborhood in a city of 250,000 residents. The city’s population growth has been steady at less than 1% per year. The property has been 94% occupied for the last six years. The city’s current occupancy rate is 90%, but that has decreased over the past five years from a high of 96%. No apartments have been built in the last five years and no plans exist for new development. The most recently developed projects cost $50,000 per unit to build and have sold
as condominiums. Incomes have been rising at the rate of inflation. Units in the subject property rent for $900 per month, but typical rent in the city has been $875. Over the last five years, two to three apartment projects have sold each year with unit sale prices ranging from $48,000 to $54,000.
Level C—Fundamental demand analysis
Some may argue that Level B inferred analysis should be sufficient because
1. Rents have a history of stability
2. Sales are recent and ample
3. Occupancy has a history of stability
4. No over- or underbuilding has occurred
However, this is a larger project with 200 units. While it currently outperforms the surrounding market, conditions in the broader market are changing, indicating an elevated level of volatility.
Choose the level of marketability analysis and the type of demand analysis that should be appropriate in each case and explain the reasons for your choices.
Case B
A 20-year-old, 150-unit, garden apartment project is located in a city of 250,000 residents. The property has no unusual features. Its vacancy rate has been less than 10% over the past five years. However, the property is currently 95% occupied. Rents have been stable over this period as well. The city’s population has remained stable over the past decade. About half the households live in rental units. The city’s occupancy rate for apartments over the past decade has fluctuated between 90% and 95%, its current rate. Adequate recent sales of garden apartment projects are available and no trend toward condominium conversion is evident in the city.
Level B—Inferred analysis
1. The project has a stable history of occupancy.
2. The occupancy rate in the city has been stable, and this
is expected to continue.
3. The project may be large, but it contains no unusual amenities.
Some may argue that Level C analysis is necessary because of the size of the property. However, with a stable market and a stable, noncomplex property, a Level B marketability analysis should be adequate. A Level A marketability analysis would not produce reliable results.
Choose the level of marketability analysis and the type of demand analysis that should be appropriate in each case and explain the reasons for your choices.
Case C
A 20-year-old, 24,000-square-foot shopping center with 12 tenant spaces is 30% vacant and has been unable to replace lost tenants. The center
is situated in a city of ±1,000,000 where most major retailers have a presence. Over the past five years, the occupancy rate in the city has been 90%. During the same five-year period, rents at the shopping center have been stable at $11 per square foot, while rents in the city have been stable at $14 per square foot. New strip center space is being developed within the subject property’s market area.
Level C—Fundamental demand analysis
1. The property is facing new competition.
2. Occupancy in the subject property is not stable. It has
declined from 90% to 70%, while the city retains a 90%
occupancy rate.
Some may argue that inferred analysis is appropriate
because the property is small. However, increasing supply suggests changing market conditions and therefore forecasting is required.
Choose the level of marketability analysis and the type of demand analysis that should be appropriate in each case and explain the reasons for your choices.
Case D
A five-unit garden apartment project is located in a city of 250,000 residents. The property is five years old and has no unusual features. The owner occupies one of the units. The property’s vacancy rate has been 5% over the past five years. Rents have been stable over this period as well. The city’s population has remained stable over the past decade; about half the households live in rental units. Adequate recent sales of small apartment properties are available and no trend toward condominium conversion is evident in the city.
Level A—Inferred analysis
1. The project has a stable history of occupancy.
2. The occupancy rate in the community has been stable, and this is expected to continue.
3. The project is small and contains no unusual amenities.
A Level A marketability analysis should produce reliable results.
