Sales Comparison Approach

Question 1

A two-unit property without air conditioning rents for $1,000 per month for each
unit. Another similar two-unit property rents for $1,050 per month per unit because it has central air conditioning. The Gross Rent Multiplier (GRM) is 80. What is the indicated adjustment for AC for this two-unit property?

Answer 1

Capitalization of Rent Differences (one of six quantitative Techniques):

2 units X $50 per month = $100 per month rent increase.
$100 Month x 80 GRM = $8,000 value difference. The indicated adjustment for central air conditioning for this two-unit property is $8,000.

Chapter 3, page 8.

Question 2

Interest

Answer 2

Principal x Rate x Time

chapter 5 page 20

Question 3

In compound interest, the interest is added to the
xxx, and xxx xxx charged on the xxx.

Answer 3

principal, and new interest charged on the sum.

Question 4

A seller determines that their house is worth $150,000. Market financing is running 6.5%. The buyer convinces the seller to offer private financing at 6%. In return, the buyer agrees to a sales price of $155,000. How does the appraiser adjust?

Answer 4

It looks like this property sold $5,000 above market on the face of it. You need to subtract the value of the financing from the price paid.

Question 5

If the seller has paid points to make the purchase more attractive, then these points must be xxx from the xx xx if they resulted in an xx market sale.

Answer 5

deducted from the sales price
above

Question 6

How do you adjust in the case of a home that cost $200,000. The first mortgage was $150,000, and the seller paid 1.5 points for the buyer:

Answer 6

Selling price of home $200,000
Less value of points
(0.015 x $150,000) - 2,250
Adjusted selling price $197,750

Remember that points are calculated as a percentage of the amount of the mortgage.

Question 7

If there are 20 houses on the market now and 5 sold in the last year - you are looking at a xx-year supply of homes currently on the market!

Answer 7

4

Question 8

A home sold three months ago for $200,000. Since then, property values have appreciated by 1%. The appraiser estimates that inferior siding depreciates the total value by 2%. Furthermore, the home is impacted in a zoning change, which will claim another 3% of its value. Its value can be estimated at:

Answer 8

Sale Price $200,000
Plus 1% appreciation Adjusted sale price #1 $2,000
= $202,000
Less 2% for poor siding Adjusted sales price #2 $4,040
= $197,960
Less 3% rezoning impact - 5,939
Adjusted sale price #3 $192,021

A property should be adjusted for market conditions first and then adjust for other physical differences.

Ch 6, page 12

Question 9

Property values rise in your region during ski season (November through April) by 5% and remain flat the rest of the year. Your comparable sold in September for $105,000. You are doing an appraisal in December. How much would you adjust?

Answer 9

$105,000 x .05 = $5,250
Note that this seasonal adjustment is one-time, not cumulative

Question 10

You work in a beach town where property values increase by 10% during the summer months and then settle back down to pre-summer values. Your comparable sold in August for $150,000. You are doing an appraisal in November. How much should you adjust?

Answer 10

$150,000 – ($150,000 / 1.10) = $13,636 adjustment

Take the correct base. The selling price in November would be $150,000 - $13,636 = $136,364. Take 10% percent of $136,364 (which is $13,636.40) and add it to $136,364 and you get $150,000.

Question 11

Remaining economic life is estimated by xxx

Answer 11

subtracting the effective age of the improvement from the total economic life

Total Economic Life
- Effective Age of Improvements
= Remaining Economic Life

Question 12

How to calculate Total Economic Life with 1.7% Average Annual depreciation rate?

Answer 12

“1”
/ Average Annual depreciation rate %
= Total Economic Life
= 59 years

Question 13

How to calculate Total Economic Life with Market Extraction Method?

Answer 13

1. Sale Price
   - Value Land
   = Depreciated Cost of Improvements
2. Cost new Improvements
   - Depreciated Cost of Improvements
   = Lump Sum $ depreciation
3. Cost new Improvements = 100%
   Lump Sum $ depreciation = X
   = Lump Sum % depreciation
4. Lump Sum % depreciation
   / Effective Age
   = Average Annual depreciation rate %
5. “1”
   / Average Annual depreciation rate %
   = Total Economic Life
   = Years to fully depreciate the improvements

Explanation:
100% = x TEL in years
Avg annual depreciation rate % = 1 year

Sales comp Approach, Ch 8, page 16

5. Age Difference of Comp
   X Average Annual depreciation rate %
   = % Total
6. % Total
   X Sale Price Comp
   = $ Adjustment for Age

Question 14

How to calculate absorption rate? Example?

Answer 14

How many sales within 1 month?

Divide the total number of settled sales by the time frame being analyzed.
60 sales / 6 months = 10 sales per month.

60 sales = 6 months
x = 1 month

Question 15

Calculate 13% of $455.32 with HP

Answer 15

455.32 ENT
13 %
59.19

Question 16

An owner sells his house for $212,750. The sales commission is 5.5%. What is the net amount received by the owner? What are the HP keystrokes?

Answer 16

212750 ENT
5.5 % -
201,048.75

OR
$212,750 = 100%
x = 94.5%

Be careful to what is 100%!

Question 17

You buy a new car for $23,350. You get an 8% rebate but pay 6.5% sales tax. What is the net amount you have to pay?

Answer 17

23350 ENT
8 % -
6.5 % +
22,878.33

Be careful to what is 100%!

Question 18

Your stock went from $32 to $47.25 in 3 years. What is the percent change?

What is the average change per year?
What are the HP keystrokes?

Answer 18

32 ENT 47.25 Δ%
47.66

3÷
15.89

Question 19

How to key in HP April 7, 2006?

Answer 19

4.072006

Question 20

Use HP: What date was 240 days after June 9, 1998?

Answer 20

6.091998 ENTER
240 g DATE
Answer:
2, 04, 1999 4
The first number is the month - 2 or February
The second number is the day - 04 or the fourth day
The third number is the year - 1999
The four over to the right is the day of the week - 1 is for Monday and 7 is for Sunday. Therefore, the date that is 240 days after June 9, 1998 is February 4, 1999, and…it is a Thursday.

Question 21

Using HP: A property was listed on October 27, 2005 and sold on May 12, 2006. How many days was it on the market?

Answer 21

10.272005 ENTER
5.122006
g ΔDYS
197

Question 22

Mortgage Capitalization Rate Formula

Answer 22

= Mortgage Constant (RM)

= Annual Debt Service / Mortgage Principal

Column 6 of six function of the Dollar

Question 23

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. If our subject property contains 2,200 square feet and Comparable 1 has 2,100 square feet, it would warrant a positive adjustment of

Answer 23

Paired Data Analysis:

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 I 150 = $30 per SF
From this example, we can extract the information that, in this instance, the market derived rate was $30 per square foot for an extra 150 square feet. Then we can take that data and apply it when we make adjustments for differences in size between the subject and the comparable sales.
For example, if our subject property contains 2,200 square feet and Comparable 1 has 2,100 square feet, it would warrant a positive adjustment of $30 x 100, or $3,000.

Question 24

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 in $ total and % per month?

Assume the comparable sale we are adjusting sold 5 months ago for $200,000. What is the adjusted amount for this comp?

Answer 24

Paired Data Analysis:

1,700 SF - 1,600 SF= 100 SF
100 SF x $38 = $3,800 size adjustment
Sale B price: Adjustment for size Adjustment for garage
Sale B adjusted price
Earlier sale (Sale A)
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.

5 months X 0.993% per month= 4.965%. 200,000 X 4.965% = $9,930.

You could make a positive adjustment for market conditions of $9,900 (rounded).

Question 25

A home that cost $200,000. The first mortgage was $150,000, and the seller paid 1.5 points. What is the adjusted selling price?

Answer 25

Selling price of home $200,000
Less value of points (0.015 x $150,000) - 2,250
Adjusted selling price $197,750

Question 26

A property sold for $190,000, but we discover that the seller was in a hurry because of a job transfer.
It’s our lucky day and we are able to find another nearly identical property that sold under normal conditions for $200,000.
How would you adjust this and in what kind of adjustment is this?

Answer 26

It would need to be adjusted upwards by $10,000 for conditions of sale.

Question 27

Assume that a house has all the windows broken out, the heating pipes have burst, and there has been some obvious water damage.
A buyer has a contractor’s estimate of $12,000 to repair the damage. The buyer made an offer of $75,000 for the property, anticipating that it would take $12,000 to put the property in reasonable condition. He felt it was a fair deal at that price.
If you use that property as a comparable sale, your adjustment would be…

How would this change if the repairs were cheaper or more expensive?

Answer 27

…of $12,000 for expenditures made immediately after purchase added to the sales price would result in an adjusted sale price of $87,000. That would be the correct procedure.

The adjustment amount does not change.

Question 28

10 houses were sold and closed in the neighborhood during the previous 12 month period. The absorption rate can be derived as follows:

Answer 28

Absorption Rate
10/12=0.833
=absorption rate per month

10 houses = 12 month
x = 1 month

Question 29

6 properties in the neighborhood are currently offered for sale. Using the absorption rate of 0.83 per month, we can find the length of time required to sell the existing inventory.

Answer 29

Absorption period
6/0.833=7.2 months to sell the properties

0.83 houses = 1 month
6 houses = x month

Question 30

A lot measures 50 feet wide by 150 feet deep. It has 5 foot setback on each side, a 10 foot setback in the back, and a 15 foot setback in the front. What is the buildable square footage?

Answer 30

5,000 SF

50 feet minus (2 x 5) = 10
150 minus (10 plus 15) = 125
40 x 125 = 5000

Question 31

if a lot contains 1,500 square yards and has a width of 50 feet, the depth is:

Answer 31

270 feet.

1,500 x 9 = 13,500 sf

13,500
/ 50
= 270 feet depth

Question 32

A house in a subdivision recently sold for $400,000. The subject is a similar style house but features several upgrades. The sold property is judged to be 10% inferior to the subject property. What is the value indicated for the subject property by this sale?

Answer 32

$444,444

They asked for the value of the subject. They did not ask to make an adjustment in the SCA.

Mathematically, this would be calculated as $400,000 / 0.9. The question is saying that the value of the subject, minus 10%, equals the sale price of the comparable. This can be checked by taking the correct answer ($444,444) and multiplying by 0.9; this results in $400,000 which is the sale price of the comparable house.

Question 33

An upgraded house in a subdivision recently sold for $210,000. The subject is a similar house but has no upgrades. The sold property is judged to be 5% superior to the subject property. What is the value indicated for the subject property by this sale?

Answer 33

$200,000

Mathematically, this would be calculated as $210,000 / 1.05. The question is saying that the value of the subject, plus 5%, equals the sale price of the comparable. This can be checked by taking the correct answer ($200,000) and multiplying by 1.05; this results in $210,000 which is the sale price of the comparable house.

Question 34

If a comparable condominium unit in the local market sold for $195,000 and an identical condominium unit sold for $182,000 in a market 40 miles away, what percent is the location adjustment for condominiums from the distant market?

Answer 34

Final Exam 01

The difference in sale price was $13,000: $13,000 / $182,000 = 7.14% location adjustment to the distant comparable data.

Question 35

A property sold for $650,000, with no seller concessions, 15 months ago. Property values in this market have been steadily increasing at a rate of 1.1% per month, compounded. What would be the market conditions adjustment made to this property if it were being used as a comparable sale today?

Answer 35

$115,915

Using the HP12c, enter 1.1 [i], 15 [n], 650,000 [CHS] [PV], then solve for [FV], which indicates 765,915. Subtracting $650,000 from $765,915 indicates a market conditions adjustment of $115,915.

Question 36

Which adjustments have to be in order?

Answer 36

The first five adjustments in the sequence of adjustments are called transactional adjustments, as they address the comparable sale transaction itself, and they must be applied in the proper order. These include property rights, financing terms, conditions of sale, expenditures made immediately after purchase, and market conditions. The other adjustments are called property adjustments, and they do not need to be applied in the proper order.