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FIN353

You are appraising a single-family residence located in the Huntington neighborhood at 4632 NW 56th Drive. The property is being acquired by a mortgage applicant and you have been asked to appraise the property by the lender. Seven potential comparable sales were initially identified. However, three of these seven were highly similar to the subject property in their transactional, physical and locational characteristics. You therefore decided to exclude the other four transactions from the comparable set.

The elements of comparison you used to compare and adjust the sale prices of the comparable properties are listed in the market data grid below. The property rights being conveyed in the acquisition of the subject property are fee-simple absolute. Conventional mortgage financing will be used by the purchaser and the acquisition appears to be an arm’s length transition. Thus, no adjustments need to be made to the sale prices of the comparable properties for the type of property rights conveyed, financing terms, or conditions of sale. However, the buyer of comparable 2 was aware that she would have to replace one of the air conditioning units immediately after acquiring the property; thus, she was able to negotiate a $3,000 price reduction from the seller.

Comparable 1 sold three months ago, while comparables 2 and 3 sold six months ago. Based on your knowledge of recent price appreciation in this market, you have decided that comparable 1 would sell for 2 percent more if sold today and that comparables 2 and 3 would sell for 4 percent more if sold today. The subject property is located in Huntington, as is comparable 1. However, comparables 2 and 3 are located in Kensington and Millhoper, respectively. Although Huntington is a high-end neighborhood, both Kensington and Millhoper are generally considered to be slightly more desirable, In fact, homes in these two neighborhoods generally sell for about a 3 percent price premium relative to similar homes in Huntington.

In these neighborhoods, an incremental square foot of lot size or living area is worth about $20 per square foot and $80 per square foot respectively. Each year of effective age reduces the value of properties in this market by about $3,000 per year. You experience suggests that each additional half-bath is worth $500; each additional full bath $1,000. Additional garage spaces, wood decks, and pools in these neighborhoods are worth $8,000, $1,000, and $12,000, respectively. No significant non-realty items were included in the comparable transactions and non-realty items are not part of the acquisition of the subject property.

Based on the above discussion of the elements of comparison, complete an adjustment grid for the three comparable properties. What is the final adjusted price (indication of the subject’s value) for comparable 1, 2, and 3?

Sales Comparison Approach: Market Data Grid for 4632 NW 56th Drive

Comp Comp Comp Elements of Comparison Subject Sale 1 Sale 2 Sale 3 Sale price of comparable $510,000 $525,000 $499,000

Transaction characteristics Property rights conveyed Fee simple Same Same Same Financing terms Conventinal Same Same Same Conditions of sale Arm's length Same Same Same Expenditures immed. after purchase None $3,000 None Market conditions Today 3 mos. ago: 6 mos. ago: 6 mos. Ago:

add 2% total add 4% total add 4% total Property characteristics Location Huntington Huntington Kensington Millhoper Physical characteristics: Site/lot size 6,662 sq. ft. 6,700 sq. ft. 6,800 sq. ft 6,600 sq. ft Construction quality Typical Typical Typical Typical Condition Average Average Average Average Effective age 5.5 years 7 years 8 years 10 years Living area 3,473 sq. ft. 3,920 sq. ft. 3,985 sq. ft. 3,835 sq. ft. Number of baths 3.0 baths 3.5 baths 3.0 baths 2.0 baths Garage Spaces 2-car 2-car 2-car 1-car Porch, patio, deck Cov porch/wood deck Cov. Porch Cov. Porch Cov. Porch Fence, pool, etc. None None Pool Pool Economics characteristics N.A. N.A. N.A. N.A. Use Single-family Same Same Same Non-realty components None None None None

Zillow: Picking the Best Comparables

Comparables are recently-sold properties in a neighborhood that are similar to a subject

home in size, age of home, location and other amenities. Real estate agents use

comparables to determine selling price and appraisers use them to determine home value.

To find comps, enter the property’s address in Zillow's search and filter for "recently

sold."

Here are 5 tips for choosing the best comps for a home.

1. Location, location, location

First, make sure your home facts are updated. Then, select comps — homes comparable to

yours — as close to your address as possible. However, there are some exceptions to this

rule. For example, a comp within a block or two of yours might not be a good comp

because it sits higher on the hill, and has phenomenal views, or it's closer to a main

arterial or freeway. Likewise, a house similar to yours could be a mile away, but still is

part of the same market area since neighborhoods are not always carved out in neat,

rectangular-shaped boundaries. This is a good comp, even though it's farther away.

Also, ideally, homes in developments should be compared against comps from the same

development since these homes were all built together at a specific time, by the same

builder/developer.

2. How many comps?

You can choose up to 10 comps or as few as 2-3 to get a new estimate for your home.

3. Select recent sales

Ideally, the most recently sold homes will have the strongest bearing on what your home

will bring, but in slower markets, you might not have that luxury. Rule of thumb: Getting

recently sold homes from the previous 3-4 months is ideal, but if not, then look back 6-8

months. In some cases, transactions that occurred two years ago are still considered

comparable.

4. Price per square foot

Price per square foot is a time-honored method of real estate valuation. However, it

doesn't account for a choice location, a move-in-ready home or personal criteria. You

should also factor in how the property was measured and whether the square footage

includes the garage or other detached buildings on the property.

5. Fuzzy stuff

You have your data, you've compared the numbers, but here come the individual

characteristics. These things are more difficult to quantify, but could boost or detract

from a home's value. In order to be comparing apples to apples, you need to consider

these "soft" features when pulling together your comp list. For example, consider:

 Curb appeal — The house sits on the "nice" side of the street; it's neatly

landscaped and has sidewalks.

 Condition of exterior — Visually make notes of the condition of the roof, paint,

chimney, driveway, fences, etc.

 Nearby amenities — Walking distance to cafes, shops and restaurants

 Neighborhood — Is the house well-kept but all others around it falling apart?

 Traffic/noise — Is it located on a busy street or near a noisy freeway?

 Schools — Is it in a good school district? Whether you have kids or not, owning a

home in a top school district adds tremendous value to a home.

The work you do here will go a long way in determining the fair market value of a home.

Sales Comparison Approach

• Principal • Substitution principle

• One price rule – equivalent goods tend to sell for equivalent prices

• Approach • Identify sales of similar properties

• Adjust sale prices to reflect differences from the subject property

• Typical adjustments include sales date, size, age, condition, location, amenities and key features

Sales Comparison Approach

• Most applicable when

• Reflects buyers and sellers analysis

–Owner-Occupied (vs. rental income) property

• Plentiful sales data of similar properties

–Active market

–Similarity of comparable sales

–Reliability of comparable sales information

• Direct Market Evidence is preferable to a complex approach

Sales Comparison Approach

• Least applicable when

• Not used by buyers and sellers

–Income producing property, typically purchased for investment

• Valuing a unique property

• Few comparable sales

Sales Comparison Approach

• Research comparable data NOTE: Sales must reflect the same Highest and Best Use (HBU) as Subject – Selection of Comparable Sales

– Verify Transaction data

• Select Unit of Comparison

• Analyze and Adjust Comparable Sales – Qualitative vs. Quantitative

– Dollar Adjustments vs. Percentage Adjustments

– Elements and Sequence of Adjustments

• Conclusions

Research Comp Data: Data Sources

 Professional Networks: Buyers & Sellers, Brokers, Appraisers

 Public records

o Assessor (City of Richmond)

o Transfer tax filings

 Newspapers, journals

Research Comp Data: Data Sources

 Commercial data resources o Real Capital Analytics (www.rcanalytics.com )

o CoStar Group (www.costar.com)

o Xceligent (www.xceligent.com)

o Loopnet (www.loopnet.com)

o MLS (www.mls.com)

o Zillow (www.zillow.com)

o Realtytrac (www.realtytrac.com)

o Redfin (www.redfin.com)

Research Comp Data: Selection of Comps

• Geographically closer is better

• Same neighborhood or similar neighborhood

• Same “market area” – may be quite broad

• Physically similar is better

• Size & design, Lot size, Age, etc.

• Most recent sales better, possible values change w/time

• Residential 6-18 mos., commercial 2-3 years • Time on market – within reasonable range

Research Comp Data: Selection of Comps

• How many Comps are enough? • 3 – 4 is the norm, “any new insights from the

next best comp?”

• Use of “Listings” • Not preferred

• Tends to set an upper limit; Requires adjustment

• Not accepted under certain circumstances

FIN 353 Appraisal Project Whitepaper Guideline

List of files on titanium-Read Before Writing Your Report!!! “Sales Comparison Approach”

“Zillow Comps”

“Appraisal Example FIN 353”

“Appraisal_Example_Full_Solution”

Everyone will prepare an appraisal report on one subject residential real estate property in

FIN 353. The report carries 20 points out of total 100 points of your grade. Everyone must submit

an appraisal report for a residential real estate property (NOT a new construction), covering all the

relevant issues appropriate to the assigned subject property. The report should present a thorough

discussion and analysis of the valuation for the assigned subject project based on sales comparison

approach (Please refer to the ppt on “Sales Comparison Approach” on Titanium for more

information about it). Your main job is to collect the information of newly listed subject property

and the information of 3-4 recent sold properties similar to subject property (comparables) from

the websites. Then conduct a thorough analysis of the subject property’s value using sales

comparison approach. The relevant information on subject property and comparable properties

could be found at the website providing information on real estate transactions. It is free access for

everyone. You could learn about the recent listings and recent sales for any place you are interested

through these websites. The most frequently used website are the following websites:

• Google: “## City Home for sale” • Zillow • Ziprealty • Realtor.com • Trulia

• Redfin

Sales comparison approach

• Principal • Substitution principle • One price rule – equivalent goods tend to sell for

equivalent prices • Approach

• Identify sales of similar properties • Adjust sale prices to reflect differences from the subject

property • Typical adjustments include sales date, size, age,

condition, location, amenities and key features

Subject property: You may choose four bedrooms or five bedrooms single family property as the

subject property of appraisal at a city with active housing market. An active housing market means

there are a lot of transactions going on. This property should be a property currently listed for sale.

The newly listed subject property should have a time on market (TOM)1 less than 3 months. If a

property has been listed on the market for fairly long time without a sale, there may be some hidden

problem with the property, or the listed price is not set well. The new listings information could

be found in all the major websites for real estate transactions. Do NOT use listing for new

construction as your subject property, which is not a good choice for practicing the sales

comparison approach.

Selection of Comparables: It is very important to select good comparables. The more similar the

comparables relative to the subject property, the less adjustment you do and the more accurate is

1 Time on Market (TOM, alternatively marketing time or days on market) is a measurement of the age of a real estate listing. It is the difference between the listing date of a property and the date of sale (the date of your estimate in this case).

your estimate. You may refer to the file “Zillow Comps” on Titanium for more information of

selecting comparables.

• Geographically closer is better • Same neighborhood or similar neighborhood (zip code,

neighborhood level) • Same “market area” – if not enough comparables in the

same neighborhood • Physically similar is better

• Size & design, Lot size, Age, etc. • Most recent sales better, possible values change w/time

• Residential within recent 3-6 months • Time on market – within reasonable range

• How many Comps are enough?

• 3 – 4 is the norm, “any new insights from the next best comp?” • Use of “Listings”

• Not preferred • Tends to set an upper limit; Requires adjustment • Not accepted under certain circumstances

Formatting: The report should be approximately 15-20 pages, double-spaced, 12-point font.

Although there are not rigid formatting requirements, please see The Business Writer’s Handbook

for helpful formatting suggestions. At minimum, the report must include:

(1) a Title page,

(2) a Table of Contents,

(3) an Executive Summary [a ½ to ¾ page overall summary of the points raised in the

paper],

(4) an Introduction—setting out the material to be examined in the paper,

(5) a Discussion and Analysis section (including the excel table of adjustment),

multiple pictures could be displayed within one page for the concern of page limit,

(6) a Conclusions section, and

(7) a Works Cited section, listing all secondary sources consulted in preparing the

report.

Due Date (Project Report Due Session on Titanium):

Please submit a digital copy of the report and the excel table of adjustment before the specified due date on the course website via the submission link on Titanium.

Please name both the digital files as:

FIN353 Report_StudentName_City of Subject Property

Important Note:

You cannot use the assumptions of various adjustment costs

in the appraisal example directly on your report. The

assumptions for adjustment are from the neighborhood

information of the set of properties you select, such as housing

market change rate, price/sq.ft for living area and lot size, etc.

Doing research on these assumptions is an important part of

this project. Doing research on these assumptions is an

important part of this project. You could use Zillow, Redfin,

Trulia and google to find evidence supporting the assumptions

using in your adjustments.

FIN 353 Appraisal Project White Paper

On

Single Family Residence

At (Address)

City, State, Zip

PREPARED FOR

(FIN 353 course)

(California State University, Fullerton)

(2550 Nutwood Ave)

(Fullerton, CA 92831)

PREPARED BY

(Student’s Name)

DATE OF REPORT

(Date)

Key information to be included in part 5 discussion:

Property Information Property Type: Residential Single Family

Property Address2:

Real Property Interest: Fee Simple

Type of Value: Market Value

Intended Use: Sell

Intended User: Seller

Time on Market3:

Property Attributes

Age (year built)

Building Size (square footage)

Rooms (?BR/?Bath)

Garage (size)

Design (0ne story, two-story, etc)

2 a permanent and absolute

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