Appraisals - Pricing

Question 1

Two Methods to Price Property

Answer 1

Appraisal – which we discussed in detail in the previous chapter
Comparative market analysis (CMA) – also referred to as a competitive market analysis

Question 2

Factors in Determining Value

Answer 2

Location
Property Condition
Improvements
Supply and Demand
Financing Trends

Question 3

CMA Steps

Answer 3

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.

Question 4

Ownership Makeup

Answer 4

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.

Question 5

Vacancies

Answer 5

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.

Question 6

Consistency

Answer 6

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.

Question 7

Current Land Use

Answer 7

Find out if the neighborhood is in transition from a residential area to some other primary use.

Question 8

Land Contour

Answer 8

Variations in the topography are more appealing than areas that are totally flat or steep and hilly.

Question 9

Streets

Answer 9

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.

Question 10

Utitlities

Answer 10

Determine the utilities available in the neighborhood, including electric, gas, water, sewers, telephone, cable TV and Internet access.

Question 11

Irritants

Answer 11

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.

Question 12

Community Status

Answer 12

Determine if the neighborhood is considered to be prominent compared to other nearby communities. Prestigious neighborhoods tend to have higher property values.

Question 13

Other Neighborhood Factors

Answer 13

Access, Schools, Public Services, Govt Issues

Question 14

Property Width

Answer 14

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.

Question 15

Frontage

Answer 15

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.

Question 16

Depth

Answer 16

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.

Question 17

Area

Answer 17

Determine the total square footage of the lot. If the lot is substantial, the area may be given in acres rather than square feet.

Question 18

Other Site Factors

Answer 18

Shape
Landscape
Position Orientation
Title Considerations

Question 19

Improvements Data

Answer 19

Construction Quality
Age
Home Size
Basement
# of Rooms
# bedrooms
# bathrooms
Air Conditioning
Energy Efficiency etc

Question 20

What appraisal method is generally most appropriate to use in appraising residential properties?

Answer 20

Sales Comparison Approach

Question 21

What are the four steps in the CMA process?

Answer 21

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.

Question 22

What should a licensee focus on when collecting information about the seller’s property for analysis?

Answer 22

The neighborhood
The home site
Existing property improvements

Question 23

What kinds of site data would a licensee collect regarding a property?

Answer 23

Property width 
Frontage 
Depth 
Area of the lot
Shape of the lot
Landscape 
Position and orientation 
Evidence of easements or encroachments

Question 24

Comparable

Answer 24

another property that has the same or almost the same characteristics and features as the seller’s property.

Question 25

Choose Comparables That

Answer 25

That have sold recently.
Whose sales are pending.
Whose listings are currently active.
Whose listings have expired.

Question 26

Recently Sold

Answer 26

similar properties that have sold within the past three to six months.
include a minimum of three properties

Question 27

Pendings

Answer 27

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.

Question 28

Active Listings

Answer 28

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.

Question 29

Expired Listings

Answer 29

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.

Question 30

What important information can a licensee glean from sales price, original price and number of days on the market when looking at sold properties?

Answer 30

This date gives information about how competitive the home was in the marketplace at the time.

Question 31

What do the current active listings show a seller?

Answer 31

The level and intensity of the competition for homes that are comparable to the seller’s home

Question 32

Of what value are expired listings to a CMA and what would be a particularly good example of one?

Answer 32

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.

Question 33

Where can a licensee find most of the information he or she needs to do a good analysis?

Answer 33

Mulitple Listing Service

Question 34

Cash Equivalent Sale

Answer 34

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.

Question 35

Arm’s Length Transactions

Answer 35

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.

Question 36

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?

Answer 36

Location and physical characteristics

Question 37

When choosing sold properties as comparables, within what time frame should they have sold?

Answer 37

They should have sold within the last three to six months. Any sale older than one year should not be used.

Question 38

How do you make adjustments for features that a comparable property either has (and the seller’s property doesn’t have) or lacks?

Answer 38

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.

Question 39

After choosing comparable properties and making your adjustments, what will be your next steps to complete the CMA?

Answer 39

Estimate a price range.

Present the data to the seller.