Real Estate Appraisal: Chapter 9 Sales Comparison Approach to

Real Estate Appraisal: Chapter 9 Sales Comparison Approach to

Value Flashcards First, the appraiser must gather data on comparable properties in the market.In collecting the data, the appraiser needs to evaluate how similar these properties are to the subject property.The most similar comparable properties should be selected for use in the analysis.The appraiser should collect all of the same data for the comparables that she already has for the subject property.This includes the terms and conditions of all transaction, information about the properties' physical characteristics, and information about listing prices and the prices of any pending offers, sales or options.In step two, the appraiser must verify the data that will be used.Not only does verification establish the reliability of the data, it also allows the appraiser to determine the circumstances surrounding the transaction.Ex. If the buyer or seller was not typically motivated, the transaction will not be a reliable value indicator.Interviewing a party to the transaction is considered the most reliable way to verify transaction data.Physical review is the most reliable way to verify the characteristics of the property.Selecting Units of Comparison An appraiser should carefully consider the form in which adjustments to the prices of comparables are expressed, and the order in which they are applied.Although adjustments are usually expressed in terms of a dollar amount, they may also be expressed as percentages.When an adjustment is expressed as a percentage, the percentage must be converted into dollars in order to calculate the adjusted sales price.Percentage Adjustments The differences between a comparable and the subject

property can be measured in two ways:1. qualitative

(superior, inferior, or same)2. quantitative (dollar amount or percentage)To analyze a difference in value based on qualitative measurement, appraisers use a technique called relative comparison analysis.For analyzing differences in quantitative terms, they use a technique called paired data analysis.Paired Data Analysis The unit of comparison is the measuring unit an appraiser decides to use in a comparison of two properties.For example, an appraiser could use the price per square foot of living area as a unit of comparison.The same unit of

comparison must be used for each property compared.comparative analysis The first step in the comparative analysis is to identify the elements of comparison.An element of comparison is any aspect of a real estate transaction that may affect the sales

price, including the terms and conditions of the sale and the characteristics of the property itself.Don't confuse elements of comparison with units of comparison.A unit of comparison is simply a unit of measurement; an element of comparison is one of the key considerations that contributes to differences in the prices paid for properties.Ex. An appraiser knows that the number of baths in a house has an effect on its sales price, so the number of baths is identified as an element of comparison for the appraisal. If the subject property has two baths, but the comparable property has only one, the appraiser will adjust the sales price of the comparable property to account for the difference in this element of comparison.The elements

of comparison for a typical residential appraisal include:1.

Real property rights conveyed (fee simple or other interest)2. Financing terms3. Conditions of sale (the motivation of the buyer and the seller)4. Expenditures needed after the sale5. Market conditions (date of sale)6.Location7. Physical characteristics (size, quality, etc.)8.Factors affecting use (zoning, water rights, etc.)9.Non-realty items included in the saleNote that the first five items on this list concern the transaction, while the remaining four are property-related.Real Property Rights Conveyed In comparative analysis, the appraiser considers the similarities and differences between the subject property

and comparable properties.This analysis generates an indicator of value for the subject property.A Value indicator