Ch 2 Flashcards
10 houses were sold and closed in the neighborhood during the previous 12 month period. The absorption rate can be derived as follows:
Number of closed sales during the period of calculation (10)
Divided by: Number of months in the calculating period (12)
Equals: 10 ÷ 12 = 0.833 = absorption rate per month
6 properties in the neighborhood are currently offered for sale. Using the absorption rate per month, we can find the length of time required to sell the existing inventory (Absorption period).
Absorption rate per month 0.833
How long is the absorption period?
Number of properties currently offered for sale (6)
Divided by: Absorption rate per month (0.833)
Equals: 6 ÷ 0.833 = 7.2 months to sell the properties (Absorption period)
It will require approximately 7 months for the market to absorb the existing inventory.
Calculate the absorption rate for the market area for the previous 12 month period. There have been 18 sales in the past year in this neighborhood. There are currently 6 houses offered for sale in the market area. What is the absorption period required to sell these houses?
18 sales divided by 12 months = 1.5 absorption rate per month.
6 properties currently offered for sale divided by an absorption rate of 1.5 = 4 months required to sell these properties.
Calculate the expiration ratio:
a) Number of months in the calculating period (12)
b) Number of closed sales during the calculating period (10)
c) Number of offerings that did not sell or listings that expired during the calculation period (4)
d) Add lines b) and c): 10 + 4 = 14 (total properties sold and unsold during the period)
e) Divide line c) by d): 4 / 14 = 0.286 = 29 percent (expiration ratio)
Using researched historical data for the past 3 years, the appraiser found 36 comparable closed property sales. During the past three years there were a total of 14 expired offerings that did not sell in the neighborhood. Calculate the expiration ratio in the neighborhood for the past three years.
Looking at data for the past 12 months, the appraiser found a total of 18 comparable closed sales during this most recent time period. There were 6 expired offerings noted during the same time period. Does the expiration ratio for the most recent 12 month period appear to be normal compared to the three year analysis?
36 month analysis: 36 sales plus 14 expired offerings = 50 total properties.
14 expired listings divided by 50 total properties = .28 = 28 %.
12 month analysis: 18 sales plus 6 expired listings = 24 total properties.
6 expired listings divided by 24 total properties = .25 = 25 %.
The 12 month expiration rate appears to be normal when compared to the 36 month expiration rate for this market area.
Sale price Gross Market Rent at time of sale #1 $98,500 $750.00 #2 $103,000 $800.00 #3 $91,750 $725.00 #4 $94,000 $700.00 #5 $100,000 $775.00 #6 $106,000 $800.00 #7 $92,500 $725.00 #8 $111,000 $890.00
Calculate the GRMs for the eight sold properties.
What is the range of the GRMs?
Calculate the mean and the median of the GRMs.
GRM #1 131.3 #2 128.8 #3 126.6 #4 134.3 #5 129 #6 132.5 #7 127.6 #8 124.7
Range = 124.7 - 134.3 = 9.6
MEAN = 129.4
MEDIAN = 128.9
Sale price Gross Market Rent at time of sale #1 $98,500 $750.00 #2 $103,000 $800.00 #3 $91,750 $725.00 #4 $94,000 $700.00 #5 $100,000 $775.00 #6 $106,000 $800.00 #7 $92,500 $725.00 #8 $111,000 $890.00
Calculate the mean and median of the sales prices.
MEAN = $99,594
MEDIAN = $99,250
Sale price Gross Market Rent at time of sale #1 $98,500 $750.00 #2 $103,000 $800.00 #3 $91,750 $725.00 #4 $94,000 $700.00 #5 $100,000 $775.00 #6 $106,000 $800.00 #7 $92,500 $725.00 #8 $111,000 $890.00
Calculate the mean and the median of the gross market rents.
MEAN = $771
MEDIAN = $762.50
Sale price Gross Market Rent at time of sale #1 $98,500 $750.00 #2 $103,000 $800.00 #3 $91,750 $725.00 #4 $94,000 $700.00 #5 $100,000 $775.00 #6 $106,000 $800.00 #7 $92,500 $725.00 #8 $111,000 $890.00
What is the “mode” of the gross market rents at the time of sale?
There are 2 modes - 725 and 800
Data is bimodal
The process of valuation using the cost approach is composed of the following steps:
- Estimate the cost new of the improvement (replacement or reproduction cost)
- Estimate accrued depreciation (the total loss in value from cost new)
- Deduct accrued depreciation from the cost new of the improvement
- Add the depreciated value of the site improvements (driveway, sidewalks, etc.)
- Add land or site value to the depreciated value of the improvement to arrive at an indicated value for the subject.
The steps or process for completing the sales comparison approach to value are:
- Assemble the similar comparable sales through the data collection process
- Review the comparable sales information (Analyze the data for location, amenities, date of sale, etc.)
- Make adjustments to the comparable sales to make them as similar to the subject as possible (Contributory adjustment process)
- Reconcile the results of this process and arrive at an indicated value for the subject.
Develop the Gross Rent Multiplier
sales price of the comparable rental sale divided by the sale’s gross rent at the time of sale = GRM
Using residential income producing properties and sales of same, the appraiser will extract information from the market and calculate a gross rent multiplier (GRM) using the VIM formula:
Value = Income x Multiplier
Calculate the indicated value of the subject by the Income Approach:
GRM x Market Rent = Indicated Value
The process of the Income Approach consists of the following steps:
- Collect and analyze comparable rental sales data
- Collect and analyze comparable rental information from the market area (to establish the market rental rate for the subject)
- Develop the Gross Rent Multiplier (sales price of the comparable rental sale divided by the sale’s gross rent at the time of sale = GRM)
- Apply the GRM to the market rent for the subject and derive an indicated value by the Income Approach to value.
