Chapter 7 Flashcards
The process of deriving a value indication for the subject property by comparing sales of similar properties to the property being appraised, identifying appropriate units of comparison, and making adjustments to the sale prices (or unit prices, as appropriate) of the comparable properties based on relevant, market-derived elements of comparison. The sales comparison approach may be used to value improved properties, vacant land, or land being considered as though vacant when an adequate supply of comparable sales is available.
Sales Comparison Approach
The most commonly used approach for appraising residential property.
Sales Comparison Approach
The more sales ______ you collect, the more supportable and defensible your appraisal will be. The traditional minimum number of comparable sales has been ____
data; three
This approach generally does not consider the income that is being produced or can be produced by the property.
Sales Comparison Approach
Income-producing properties are generally appraised with which approach?
Income Capitalization Approach
The appraisal principle that states that when several similar or commensurate commodities, goods, or services are available, the one with the lowest price will attract the greatest demand and widest distribution. This is the primary principle upon which the cost and sales comparison approaches are based
Principle of Substitution
Of the three appraisal approaches, the sales comparison approach relies most heavily on which principle?
Principle of Substitution
The concept that the value of a particular component is measured in terms of the amount it adds to the value of the whole property or as the amount that its absence would detract from the value of the whole.
Principle of Contribution
sale price of comparable plus or minus the adjustment to price = indicated value of subject
Sales Comparison formula
The sales comparison formula always starts with the __________. We never adjust the ______ property.
comparable
The first step of this procedure is to research the market in which the subject is competing for indications of value.
Sales Comparison Procedure
_____ ____ ______ is the second step of the sales comparison procedure.
Verifying the information
The Sales Comparison Procedure (5 steps)
Research the market Verify the information Select relevant units of comparison Identify differences and make adjustments Reconcile the value indications
An appraiser uses five comparable sales, and gets a differing indication of value from each one. What step of the sales comparison process involves considering these indications and arriving at an indication of value for the subject?
select relevant units of comparison
reconcile the value indications
verify the information
none of the above
reconcile the value indication
What is the first step in the sales comparison approach process?
select relevant units of comparison
reconcile the value indications
research the market
verify the information
research the market
The subject property has 1,200 square feet of GLA, and a comparable sale has 1,400 square feet. What type of adjustment are you likely to make in the sales comparison approach for GLA?
a downward adjustment to the comparable
an upward adjustment to the comparable
a downward adjustment to the subject
an upward adjustment to the subject
a downwards adjustment to the comparable
In the sales comparison approach, we adjust
the subject
the comparable
either the subject property or the comparable, depending on the appraiser’s discretion
comparable listings but not comparable sales
the comparable
True or False: In an arms-length transaction, the seller is under no duress to sell, but the buyer may be under duress.
False
A group of complementary land uses; a congruous grouping of inhabitants, buildings, or business enterprises
neighborhood
A neighborhood characterized by homogeneous land use, e.g., apartment, commercial, industrial, agricultural.
district
The geographic region from which a majority of demand comes and in which the majority of competition is located. Depending on the market, a market area may be further subdivided into components such as primary, secondary, and tertiary market areas, or the competitive market area may be distinguished from the general market area
Market Area
Before completing the sales comparison approach we need to collect:
General data about trends affecting the neighborhood, city, region and nation
Specific data about the subject and its improvements
Comparables to be used for valuation
Data that relates to the four forces that affect real property values—social, economic, governmental, and environmental forces. This type of data is usually not specific to any particular property but is applicable in many assignments of similar types of properties. Also known as macro-level data
General Data
Details about the property being appraised, comparable sale and rental properties, and relevant local market characteristics
Specific Data
Places where you might find specific data:
Personal inspection Homeowner Deed Lease(s) Assessment record Tax bill Survey Site plan Title document Homeowners Association declaration and bylaws
When collecting data, the appraiser looks for information on:
Recent sales
Listings of comparables
Contracted or pending sales
Offers / refusals / options
Where can we obtain information on property sales?
Multiple Listing Services Data Subscription services Real Estate agents Other appraisers Appraisal organizations Your own files Courthouse records Assessor records Newspaper articles Newspaper advertisements
The process by which a value indication is derived in the sales comparison approach. Comparative analysis may employ quantitative or qualitative techniques, either separately or in combination
Comparative Analysis
In applying comparative analysis, an appraiser may employ
qualitative techniques only
quantitative techniques only
quantitative or qualitative techniques, either separately or in combination
quantitative or qualitative techniques separately, but not together
quantitative or qualitative techniques, either separately or in combination
True or False: A market area could encompass an entire state, or several states.
True
“The geographic region from which a majority of demand comes and in which the majority of competition is located” is the definition of
neighborhood
market area
district
municipality
market area
This type of analysis is based on numbers, and results in either dollar or percentage amounts.
Quantitative
This type of analysis is used for elements that cannot be given a numerical value.
Qualitative
Quantitative analysis usually forms the basis of your
opinion
A numerical (dollar or percentage) adjustment to the indicated value of a comparable property to account for the effect of a difference between two properties on value
Quantitative Adjustment
This is a technique that is often used in extracting adjustments - is a common type of quantitative analysis
Paired data analysis
A quantitative technique used to identify and measure adjustments to the sale prices or rents of comparable properties; to apply this technique, sales or rental data on nearly identical properties are analyzed to isolate a single characteristic’s effect on value or rent. Often referred to as paired sales analysis.
Paired data analysis
Comparable 1 sells for $185,000 and has a fireplace. Comparable 2 was built by the same builder, is right across the street, and is similar in all aspects except that it has no fireplace. It sells for $180,000. What’s the value of the fireplace?
$5,000
$185,000 - $180,000 = $5,000
Comparable 1 sells for $208,000 and contains 2,100 SF. Comparable 2 is similar in all aspects, except it contains 1,950 SF, and it sells for $203,500.
We can subtract the square footages of the two homes (2,100 -1,950 = 150 SF) to obtain the difference in size between the two homes.
Then we can subtract the sale prices of the two homes ($208,000 - $203,500 = $4,500) to obtain the difference in sale price between the two homes.
Because the two homes are otherwise the same, we can conclude that the $4,500 difference in the sale price between the two homes is based on the 150 square foot difference in size. We can even take these two numbers and divide them, to get an indication of how much each additional square foot adds to the value of the home. $4,500 / 150 = $30 per SF
A home sells in January for $180,000 and sells again in November for $198,000. When the home resold, it had not been improved at all from the date it was originally purchased. The only change was the time. What is the indicated adjustment for time or change in market conditions?
$198,000 / $180,000 = 1.10
10% over 10 months
The HP 12C employs five financial function keys. They are arrayed across the top of the calculator and include:
n = number of periods
i = periodic interest rate
PV = present value
PMT = periodic payment
FV = future value
Sale A, which is a 1,600 square-foot home with a double garage, sold for $190,000 in February. Sale B, which is very similar except it had 1,700 square feet of living area and only a single garage, sold for $204,900 in October.
It has been determined that the indicated adjustment for square feet of living area is $38.00 per square foot and the adjustment for the difference in garages is $4,000.00. What is the market conditions (time) adjustment?
Sale B price: $204,900
Adjustment for size - 3,800
Adjustment for garage + 4,000
Sale B adjusted price $205,100
Earlier sale (Sale A) $190,000
Difference (time of sale) $ 15,100
$15,100 / $190,000 = .0795 or 7.95% increase over 8 months. 7.9 / 8 = 0.993% per month.
The process of accounting for differences (such as between comparable properties and the subject property) that are not quantified; may be combined with quantitative techniques.
Qualitative Analysis
A qualitative technique for analyzing comparable sales; used to determine whether the characteristics of a comparable property are inferior, superior, or similar to those of the subject property. Relative comparison analysis is similar to paired data analysis, but quantitative adjustments are not derived.
Relative Comparison Analysis
Comparable 1 sold for $400,000 and is greatly superior to the subject; Comparable 2 sold for $250,000 and is significantly inferior to the subject; Comparable 3 sold for $300,000 and is slightly inferior to the subject. Based on qualitative analysis, the indicated value for the subject would probably be in the range of $300,000 to $350,000.
Comparison Analysis Procedure
A qualitative technique for analyzing comparable sales; a variant of relative comparison analysis in which comparable sales are ranked in descending or ascending order of desirability and each is analyzed to determine its position relative to the subject.
Ranking Analysis
True or False: Qualitative analysis is used for elements that cannot be given a numerical value.
True
What type of analysis is used for elements that cannot be given a numerical value? qualitative quantitative percentage units of comparison
Qualitative
Comp A has three bedrooms and sold for $118,000. Comp B has four bedrooms and sold for $125,000. What is the indicated adjustment for a fourth bedroom, using these two paired sales? $1,000 $3,000 $7,000 $8,000
$7000
A property sold for $129,000. It was not improved or added onto, and it re-sold 12 months later for $141,900. What is the annual change in market conditions indicated by this sale?
a 10% increase
an 8% increase
a 10% decrease
an 8% decrease
a 10% increase
The only limitation of the sales comparison approach is that _____________.
it only works for residential properties
it only works for income producing properties
it doesn’t work the way people think
you need a sufficient number of reliable sales
You need a sufficient number of reliable sales
Besides properties that have recently sold, other value indications might include all of the following EXCEPT listings offers to purchase option to purchase offers to lease
offers to lease
Comparable 1 sells for $222,000 and contains 1,900 SF. Comparable 2 is similar in all aspects, except it contains 2,100 SF, and it sells for $234,000. How much should we adjust another comparable sale, per square foot? $30 $40 $50 $60
$60
Which of the following would NOT be considered a source of specific data? U.S. Census Bureau personal inspection deed tax bill
US Census Bureau
The primary principle upon which the cost and sales comparison approaches are based is the principle of \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_. substitution change externalities supply and demand
Substitution
The principle of _________________ is used when determining how much to adjust for differences between various components of a property.
change
contribution
anticipation
increasing and decreasing returns
Contribution
\_\_\_\_\_\_\_\_\_\_\_\_\_\_ is “the process by which a value indication is derived in the sales comparison approach”. Comparative analysis Bracketing Adjustment analysis Quantitative analysis
Comparative Analysis
A market area boundary might be indicated by a change in all of the following EXCEPT
age of structures
type of use; single family, commercial, etc.
topography
income levels
Topography
Price per square foot of gross living area is a common unit of comparison when appraising
offices
2-4 unit properties
vacant land
one-unit residences
One unit residences
A transaction could be verified through any of the following EXCEPT buyer seller home inspector listing agent
home inspector
In the URAR, concerning verification, you are asked to provide the ____________ and the __________.
data source, verification source
verification source, date of data
data source, date of data
verification source, email address of source
data source, verification source
Price per square foot of net leasable area is a common unit of comparison when appraising offices 2-4 unit properties vacant land one-unit residences
offices
“A neighborhood characterized by homogeneous land use, e.g., apartment, commercial, industrial, agricultural” is the definition of \_\_\_\_\_\_\_\_\_\_\_\_. neighborhood district market area market
district
Which analysis technique employs only plusses and minuses?
quantitative analysis
comparison analysis
paired data analysis
relative comparison analysis
relative comparison analysis
“A group of complementary land uses; a congruous grouping of inhabitants, buildings, or business enterprises” is the definition of neighborhood district market area market
neighborhood
Paired data analysis is an example of \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ analysis. quantitative statistical cost-benefit comparative
quantitative
The principle of \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ is used when determining how much to adjust for differences between various components of a property. change contribution anticipation increasing and decreasing returns
contribution
Adjustments should be made for \_\_\_\_\_\_\_\_\_\_ differences between the subject property and a comparable property. all at least three significant no more than three
significant
The last step in the sales comparison approach is
verify the information
research the market
reconcile the value indicators
identify differences and make adjustments
reconcile the value indicators
Which of these is NOT another name for the sales comparison approach? direct sales comparison approach sales capitalization approach market approach market data approach
sales capitalization approach
