Appraisals - Pricing Flashcards
Two Methods to Price Property
Appraisal – which we discussed in detail in the previous chapter
Comparative market analysis (CMA) – also referred to as a competitive market analysis
Factors in Determining Value
Location Property Condition Improvements Supply and Demand Financing Trends
CMA Steps
Collect and analyze information about the seller’s property.
Choose comparable properties in the area.
Compare the seller’s property to the comparables and do some adjusting to the value of the comparables.
Estimate a reasonable and realistic selling price for the seller’s property.
Ownership Makeup
Determine whether most of the homes in the area are owner-occupied or if there are a lot of rental properties. Homes that are owner-occupied tend to be in better shape and show less wear and tear.
Vacancies
Check on the percentage of homes in the area that are vacant. If there are several, it could mean that people are not interested in moving into this neighborhood.
Consistency
Determine how similar the homes in the neighborhood are with regard to style, age, size and quality. Zoning codes and restrictions, when enforced, have a considerable effect on protecting the values of the properties.
Current Land Use
Find out if the neighborhood is in transition from a residential area to some other primary use.
Land Contour
Variations in the topography are more appealing than areas that are totally flat or steep and hilly.
Streets
Assess how well the streets are maintained. In addition, check the width of the streets in the neighborhood. People tend to prefer wide streets to narrow, crowded ones.
Utitlities
Determine the utilities available in the neighborhood, including electric, gas, water, sewers, telephone, cable TV and Internet access.
Irritants
Check for nearby annoyances that could potentially lower the property’s value, such as odors, industrial noise or pollution, smog, fog or frequent, excessive wind.
Community Status
Determine if the neighborhood is considered to be prominent compared to other nearby communities. Prestigious neighborhoods tend to have higher property values.
Other Neighborhood Factors
Access, Schools, Public Services, Govt Issues
Property Width
Get information about the lot’s measurement from one side boundary to the opposite side boundary. Note that this measurement can vary. The width of a pie-shaped lot will be much smaller in front than it is in the back and will change at all points along the way.
Frontage
This measurement is the length of the front boundary of the property, either along the street or along a lake, river or other body of water. If the frontage is significant, it can raise the value of the property, especially if it grants access to a desirable feature.
Depth
Get information about the depth, which is the measurement of the distance from the front boundary to the boundary at the back of the site. Sometimes a deeper lot is perceived to be more valuable, but that is not always the case.
Area
Determine the total square footage of the lot. If the lot is substantial, the area may be given in acres rather than square feet.
Other Site Factors
Shape
Landscape
Position Orientation
Title Considerations
Improvements Data
Construction Quality Age Home Size Basement # of Rooms # bedrooms # bathrooms Air Conditioning Energy Efficiency etc
What appraisal method is generally most appropriate to use in appraising residential properties?
Sales Comparison Approach
What are the four steps in the CMA process?
Collect and analyze information about the seller’s property.
Choose comparable properties in the area.
Compare the seller’s property to the comparables and do some adjusting to the value of the comparables.
Estimate a reasonable and realistic selling price for the seller’s property.
What should a licensee focus on when collecting information about the seller’s property for analysis?
The neighborhood
The home site
Existing property improvements
What kinds of site data would a licensee collect regarding a property?
Property width Frontage Depth Area of the lot Shape of the lot Landscape Position and orientation Evidence of easements or encroachments
Comparable
another property that has the same or almost the same characteristics and features as the seller’s property.
Choose Comparables That
That have sold recently.
Whose sales are pending.
Whose listings are currently active.
Whose listings have expired.
Recently Sold
similar properties that have sold within the past three to six months.
include a minimum of three properties
Pendings
offers have been accepted by the sellers, but the sales haven’t closed and the titles have not transferred. Sales normally remain in the pending stage for 30 to 60 days.
Active Listings
Sellers are always interested in knowing the listing prices of the comparable homes currently for sale in their area. While this is understandable and the licensee needs to present this information, it should also be accompanied with some sound advice.
Expired Listings
Most often a property fails to sell because of overpricing. Expired data may show the seller that the asking prices of these homes were significantly higher than the selling prices of the homes on the recently-sold list. This is powerful information for a licensee to share with a potential seller.
What important information can a licensee glean from sales price, original price and number of days on the market when looking at sold properties?
This date gives information about how competitive the home was in the marketplace at the time.
What do the current active listings show a seller?
The level and intensity of the competition for homes that are comparable to the seller’s home
Of what value are expired listings to a CMA and what would be a particularly good example of one?
Expired data may show the seller that the asking prices of these homes were significantly higher than the selling prices of the homes on the recently-sold list.
A particularly good example to share with a seller would be that of an expired listing that had been re-listed and is now on the sold properties list.
Where can a licensee find most of the information he or she needs to do a good analysis?
Mulitple Listing Service
Cash Equivalent Sale
When a buyer uses a conventional loan to purchase a property
Cash equivalent sales have no effect on the price the buyer paid for the property.
Arm’s Length Transactions
both parties are dealing from equal bargaining positions, conducting the transaction in a formal manner without trusting each other’s fairness or integrity and without being under the control or influence of one another.
What are the two most important areas for a licensee to focus on when choosing comparables for every category -active, sold, pending and expired listings?
Location and physical characteristics
When choosing sold properties as comparables, within what time frame should they have sold?
They should have sold within the last three to six months. Any sale older than one year should not be used.
How do you make adjustments for features that a comparable property either has (and the seller’s property doesn’t have) or lacks?
If a comparable has a feature that the seller’s property does not have, subtract the value of that feature from the price of the comparable.
If a comparable lacks a feature that the seller’s property has, add the value of the feature to the price of the comparable.
After choosing comparable properties and making your adjustments, what will be your next steps to complete the CMA?
Estimate a price range.
Present the data to the seller.
