Instructor: Diana T. Jacob
Home Phone: 254.582.3940
Cell Phone: 210.363.5950
Email: dianatjacob@yahoo.com
 Contrast between an Quantified Analysis and Qualified
Analysis
 Recognize Role of Highest and Best Use in Comparable
Selection
 Reporting the range of comparable sales and comparable
listings
 Comprehend Verification under a regulatory perspective
 Perform comprehensive analysis of concessions
 Recognize when time adjustments is warranted
 Understand the Methodologies of adjusting
 Identify differences in location
 Understand Leasehold versus Leased Fee
 Separating Site from View
 Understanding how GLA and Room Count are defined
 Result of a Sales Comparison Approach is
a value conclusion based on central
tendency in a Market Value opinion
 The form isn’t the driver of the appraisalit’s the communication format for which
supplemental information will have to be
added to ensure understanding of how
the value was derived
 Failing to understand the intended user
and the intended user proves fatal to
identifying the appraisal problem and
necessary Scope of Work to solve the
problem identified
1-3
 The Sales Approach to value is a
process rooted in the conclusion of
the Highest and Best Use of the
property under a market value
standard of measure
 Similar sales liken to the subject
are adjusted for market recognized
differences to dissimilar
characteristics
 CBS-Comparable Better Subtract
 CIA-Comparable Inferior Add
1-4
 Data obtained in the Sales Approach
must be verified by confirmation of the
facts to ensure accuracy of the reported
information and the “arm’s length”
characteristic that places it in a market
consideration.
 By definition an arm’s length transaction
is one in which buyers and sellers act
independently and have no relationship
to each other. Conceptually an arm’s
length transaction intent is to ensure
that both parties in the deal are acting
in their own self-interest and are not
subject to any pressure or duress from
the other party.
1-4




Strangers engaging in a transaction
Parties who know one another
Parties who are related
Short-Sale
Class Discussion:
Case in Point – A contract pending for $100,000
with the seller paying all allowable closing costs
equals a 4% contribution. The market shows
that sellers pay these types of closing costs in
95% of the transactions exchanged in this
neighborhood. The pending sale price of the
subject is per sq. ft. of Gross Living Area (GLA) is
$62.50; the range of sale price per GLA of the
most comparable sales is $61.75 -$67.25
 Question:
Based on the information
provided does this appear to be a transaction
that supports a market value behavior in this
pending sale? ____YES ______NO
1-5
 Additional Information-The appraiser notes the
parties have the same last name and, finds
during the research of this pending sale, the
parties were formerly married and, have been
divorced for the past 2 years. The property
owner has had the property listed with a
licensed real estate agent for the past 60 days
with no offers. The seller has been relocated to
another town and is anxious to sell in market
that normally transacts when properties are
offered at a market competitive price within 60120 days. The buyer has made the offer of
$100,000 with seller closing costs paid as that is
the best offer the buyer can make based on the
pre-qualified loan approval.
 Question:
Is this an arms-length
transaction? ____ YES _____ NO
 Question:
Once closed can this
transaction be considered a comparable sale?
____YES ____ NO
1-6
Principle of Substitution
Principle of Supply and Demand
Principle of Competition
Principle of Balance
1. Labor
2. Capital
3. Coordination
4. Land
Principle of Externalities
1. Physical
2. Economic
3. Governmental
4. Social
1-6 thru 9
 To quantify is to prove through comparison
a difference which is the result of “Paired
Sales Analysis” and “Regression Analysis”.
Quantified analyses are the desired method
of identifying adjustments but there are
weaknesses in the analyses.
Weaknesses of Quantified Analysis
 Rare and unlikely that two transactions will
have only one point of difference that can
be identified as “proof positive” the
market’s reaction for the component of
dissimilarity
 Details about the transactions before the
comparison are difficult to fully know or
obtain in the normal course of business
 Statistical analyses have their strength
based on large numbers/data sets. These
are generally not seen or available in the
micro defined boundaries of like housing
within a neighborhood
1-9
 Qualified analyses are judgments of decisions
based on the logic and reasoning without a
specific comparison of two or more transactions.
A component can be obviously different but have
no history in a given market as to what the market
would pay or not pay or even discount for that
item.
 Case in Point – The subject has been renovated
over the past 5 years. One of the renovations was
the addition of a “Safe-Room” on the interior of
the dwelling that served as a dual utility, large
walk-in closet to the main bedroom. The clothes
rack was higher than typical and was accessed by a
“pull-down” handle so there could be a 3 foot
clearance under the longest hanging clothes item.
This allowed for a pull-down cot-like bed so that
during the emergency seating would be allowed.
There was also a safe that contained the important
documents of the owner on the interior-with a
built in mini-shelved closet that held nonperishable food items. Concealed in the area were
emergency items (first-aid kit, batteries, radio,
flash-lights, etc.). The owner spent $12,000 having
this “safe-room” designed. There were no other
houses with this dual use.
1-9
Question(s)
 Should the item of dissimilarity
be considered for an
adjustment? ___Y ___N
 Should the item be considered
super-adequate when the
subject is located in an area
that annually comes under
Tornados threats and
occurrences of past storms
each Spring.
___Y ___ N
1-10
 MP Mortgage Position
 X MC Mortgage Constant
 X DCR Debt Coverage Ratio
 = Ro Rate Overall
 Therefore
.90
X0.071147
X1.2
= 0.076838 or 7.7% Ro
$200 yearly savings
÷
0.077 R0
=$2,597.40 or $2,600
Chap 1-1-10
Not in BookAdjusting an
item not seen
in the market
 Additional Information – When interviewing local
realtors it was discovered that newer constructed
homes outside the neighborhood were being built
with similar safe-rooms. The realtors said that local
residents recognized the item more readily than “outof-towner buyers”. The realtors stated that $5,000$7,000 was the range they consistently saw as the
price variances in the new construction of houses that
had similar dual functioned areas.
Question(s)
 Do you think this price range of new construction
would be suitable as an adjustment for this item that
is in the subject but not in any sales?
___Y ____N
 Would it be reasonable to offer one of those sales
outside the neighborhood in newly constructed
neighborhoods as support in the Sales Approach for
the market’s acceptance of this item and evidence of
the contribution of the item of dissimilarity?
___Y ____N
1-10
1-10
Weakness of Qualified Adjustments
 Does not show any actual market transactions
for the contribution difference
 There are “evidentiary issues” when using this
method
 May be difficult to find agreement from peers
 When using “qualified judgment” it is critical to
give a specific narrative description, even in a
summarized format, that details the core logic
and reasoning of how the appraiser determined
1) if there should be an adjustment and 2) how
the adjustment was determined.
 Proof legally presented through documents and
witnesses
2-3
 When the ranges of
comparable sales
reported above the Sales
Approach grid fall out of
the range neighborhood
there is something
woefully wrong.
 Another “red-flag” that
will call for a comment is
when the concluded value
falls outside the
predominant price.
Questions to ask and data that are to
be gathered include:
 Location of a recognized boundary for
residential housing (linkages and
access)
Don’t limit the boundaries to like housing
only as the true influences of the
neighborhood can’t be recognized.
Neighborhoods include more than like
housing-they also include supporting
amenities such as shopping-gas stations-drycleaners-schools-houses of worship.
Be careful of major arteries-very often once
a river or major transportation artery is
crossed a different neighborhood (often
non-competing), resides.
2-4
Comparable
Transactions
for a Physical,
Legal and
Economic
Perspective
What
constitutes a
comparable
transaction?
2-4
Details of the neighborhood that should have
been addressed in the Neighborhood would be:
• How many residential districts/sub-markets
were in the bounded area
• Level of maintenance and condition of homes
• Housing styles, ages, sizes, etc. (your age range
was so broad it gave appearance of mixed-use
• Land Uses
Location of a recognized
boundary for residential
housing (linkages and
access)
 Look at the various houses within the
blue boundary
2-4
Subject-
10 Blks West
Location of a recognized
boundary for residential
housing (linkages and
access
8 Blks West
Can you understand
why you need to
comment on the land
use and why within
the boundaries of a
neighborhood one
street location may be
superior to another?
Questions to ask and data that are to
be gathered include:
 Identification of specific property type
(detached, attached, single-family,
townhome, condo, garden home)
 What do you do when the definition of
the property is a condo (owner does not
own the land in severalty but as a tenant
in common) but it’s a detached building?
 What do you do when the Townhome
(which is the subject) is detached based
on a local neighborhood renewal program
and the space between the dwellings are
less than 8’?
 Is a patio home a suitable comparable?
 Is an attached Townhome comparable?
2-4
Comparable
Transactions
for a Physical,
Legal and
Economic
Perspective
What
constitutes a
comparable
transaction?
Questions to ask and data that is to be
gathered represent comparative units
for which bracketing can become a
focus for identifying sales of the most
similar features.
RURAL RESIDENTIAL MARKETS
 Mixed acreages and land use defy the
Principle of Conformity.
 Focus on the same elements other
rural residential properties offer
 Size of GLA-,# Bedrooms, #baths
 Age is often not a factor nor is design style
but condition and quality of construction
and CONDITION OF WELL and SEPTIC is a
factor
 Land area will often be recognized as a
factor in the increment range of 1-5 acres,
6-10, 15-20. In general once you go beyond
20 the increments increase such as 20-40.
2-4
Comparable
Transactions
for a Physical,
Legal and
Economic
Perspective
What
constitutes a
comparable
transaction?
2-5
 Users of appraisal services must
understand that although a comparable
can be a sale or a listing - not all sales or
listings are comparable.
 Sales are transactions of exchanges
between sellers and buyers that occur
when the property transfers the title in
exchange for something of value such as
cash.
 The transactions are most often
characterized as either 1) arms-length or
2) distressed.
 The greater the similarity to the subject
the more comparable it becomes.
 Bracketing is a methodology that
affords appraisers the ability to
create criteria for identifying sales
which can be used in the Sales
Comparison Approach due to their
characteristics of similarity.
 In developing a credible Sales
Approach the data gathering and
selection of most comparable
transactions is accomplished best
when criteria is established for
recognized units of comparison and
then identifying those sales that
“sandwich” below and above those
comparative units.
2-5
 If you do a word search in the
Uniform Standards of
Professional Appraisal Practice
(USPAP) for “verify” you will
not find the word. If you type
in “verification” you do not find
the word until you reach
Statement 6 whose subject is
“Exposure Time”.
 Note the use of the word
“verification” in USPAP in
Statement 6.
2-6
2-7
 It’s not until the Secondary Market Assignment
Conditions that the word “verify” or
“verification” becomes specific.
 From Fannie Mae….” Single or multiple sources
for data and verifications are acceptable
provided the appraiser adequately verifies the
comparable sales. Examples of data sources
include, but are not limited to, a multiple
listing service, deed records, tax records,
realtors, builders, appraisers, appraiser’s files,
and the Internet.”
NOTE: It didn’t say you must contact the seller or
buyer but it does go on to state….” Regardless of
the source(s) used, there must be sufficient data
to understand the conditions of sale, existence
of financing concessions, physical
characteristics of the subject property, and
whether it was an arms-length transaction.”
FHA is more specific
 Item 10 of the Certification Statement is
of course impossible to perform. This is
especially true in non-disclosure states
such as Texas.
“I verified, from a disinterested source,
all information in this report that was
provided by parties who have a financial
interest in the sale or financing of the
subject property. “
It’s recommended you clean up
this certification statement with
clarification about how you
proceeded to comply
under the statutory
limitations of your state laws.
2-10
 Look at the DO NOT’S and DO’s of FHA when it
comes to verification of Sales
 Enter verification source(s), the document or
party from which the additional proof was
obtained. MLS by itself is not considered a
verification source.
 Contacting someone with first-hand
knowledge of the transaction (agent, broker,
buyer, seller, etc.), especially where it involves
confirmation of seller concessions, is the
preferred method of verification.
 A single source may be used if the quality of
data is such that sales data are confirmed and
verified by settled transactions. Information
provided should permit the reader of the
report to locate the data from the sources
cited.
 Do not use, as market data, sales that are not
verified and adjusted to reflect the terms and
conditions of sale.
2-11
2-13
 Most often the difficulty in identifying adjustments
is the lack of practice in the analytical comparison
of sales. This is due to what most appraisers will
state is a theory that is for the most part
impractical in day to day practice. This reasoning is
problematic on three basic levels,
1) the appraiser has signed a statement of
certification promising in writing their ethical
obligations to comply with USPAP,
2) USPAP requires the appraiser to support their
approaches to value and
3) most Assignment Conditions of the financial
secondary market as well as other government
agencies take great strides in defining what each
adjustment should represent and how it must be
documented in the appraisal process
2-13
Most appraisers will agree the
Sales Approach should be
weighed the heaviest in
residential valuation yet they
perform that approach with no
real quantitative or qualitative
evidence.
This is a most dangerous “bad
practice” which can lead to
conclusions and judgment of
misleading, incompetent
malpractice.
2-14
Site – A physical fact that cannot always be tied to a size.
There are cases when the site shape may have more to do
with the dollars of difference paid. For example often you
will find Cul-de-Sac lots having less site area especially in
the building envelop after setbacks are defined. However
the demand for the privacy is often more valuable the size
difference by comparison of an interior site that is
rectangular.
View- It’s a physical measure that is very often difficult to
measure when analyzing a market reaction for the view
from the site’s location or to distinguish from the site area.
The demand is connected to a physical “eye-appeal” that
can be merged into a buyer’s consideration of the
location, the shape and the size of the site area when the
property was purchased. Limited data in the marketplace
can make the discernment of market reaction for the view
alone a difficult item to isolate.
2-15
 When considering these two line items the
appraiser must determine if both can be so
well defined that the market will distinguish
between the two or possibly consider that
the most credible defining difference is
between the values of each site.
 The appraiser needs to spend time
summarizing for the client and other
intended users how he/she studied the
market with the focus on the site, in that
specific location. That summary needs to
include its comparative differences inclusive
of any view attractions or detractions.
2-15
 Design (Style) – This line item is a Physical factor that
will rarely become so visibly distinguishable in the
market when viewing sales suitable for comparable
consideration. Generally the age of the
neighborhood will promote a traditional history of
styles that although different, will be harmonious.
 Quality of Construction – This is another Physical
Factor line item that is very often confusing to
distinguish. The Uniform Appraisal Dataset (UAD)
sets forth the criteria for measuring and reporting the
differences. In those instances when there is a
mixture the appraiser must decide between one or
the other and then adjust with a comment as to why
possible adjustments were made when the line item
was concluded to be the same. Example: “The line
item of Quality of Construction, noted as being the
same across the board was based on the requirement
to conclude one absolute versus the other absolute
rating. However, the verification of the sales did
show some slight differences which were recognized
by the buyer in both price and shorter Days on the
Market. The comparative differences confirmed by
the agents involved with the sales were the basis for
the adjustment.”
2-15
 Quality of Construction –Example: “The
line item of Quality of Construction,
noted as being the same across the
board was based on the requirement to
conclude one absolute versus the other
absolute rating. However, the
verification of the sales did show some
slight differences which were
recognized by the buyer in both price
and shorter Days on the Market. The
comparative differences confirmed by
the agents involved with the sales were
the basis for the adjustment.”
2-16
 Actual Age – This line item since the UAD has rarely
been considered an item to be adjusted based on
how properties are maintained and how they are
renovated. It is a physical influence that will
periodically shift as maintenance and renovations
take place. The guidance of the UAD states “The
appraiser must report the actual age of the subject
property and each comparable property. For new
construction that is less than one year old, enter the
numeral zero (0). Do not enter any additional
information such as “years‟ or other descriptors. If
the actual age is unknown, enter the estimated age.”
Given that directive, unless the appraiser has
evidence there is a market reaction any adjustment
may appear suspicious if the sales are close in age.
When there is a broad distance between ages of
comparables and the subject then some type of
adjustment is most often expected due to long-term
items having differences of remaining contribution.
For example a 5 year old house and a 15 year old
house that has been recently renovated will still have
some type of wear and tear difference in the overall
structure and foundation.
 Room Count and Gross Living Area (GLA) These
major items of Physical difference are market driven
by both demographics as well as functional utility.
 In many cases there will be no distinguishable
difference to the market if a dwelling has both a
formal living room and a den or a breakfast room and
a formal dining room as long as the room is of
sufficient size to provide the activity.
 Not so when the comparison was made between 2
Bedroom Dwellings and 3 Bedroom Dwellings.
Although there may not be a significant difference
between a 3 bedroom versus a 4 bedroom there
would typically be a difference between a 3 bedroom
and a 5 bedroom. It’s the job of the appraiser to
narratively communicate what the demographic
support is for the room count, number of bathrooms
and bedrooms and whether or not there are
recognized market reactions to those physical
differences.
 Chapter 8 will show methods of defining when room
count becomes distinguishable from the GLA
2-17
3-2
One thing is certain-there is
no consensus on how a
concession is to be treated
in a Sale’s Approach-only
that it must be identified in
each transaction as well as
the contract pending and
that its influence, if any,
should be reflected in the
appraisal.
Chap 3-pg 3-14
NIB-
 Sale Price Comp 1
$250,000
Land Ratio 20%
10 acres site size
Land Value = $250K x 20%
$50,000
Sales Price Comp 2
$160,000
Land Ratio 25%
2 acres site size
Land Value = $160K x 25%
$40,000
Difference Land Value
Difference Acreage
Market Reaction per Acre
$10,000
÷8
$1,250
4/4 10%
3/4 20%
2/4 30%
¼ 40%
Chap 3-pg 3-14
NIB-
 Interested party contributions
(IPCs) are costs that are normally
the responsibility of the property
purchaser that are paid directly or
indirectly by someone else who has
a financial interest in, or can
influence the terms and the sale or
transfer of, the subject property.
 IPCs are either financing
concessions or sales concessions.
3-3
3-6
Financing concessions that are paid
on the borrower’s behalf are subject
to Fannie Mae’s IPC limits. Financing
concessions are:
 financial contributions from
interested parties that provide a
benefit to the borrower in the
financing transaction;
 payments or credits related to
acquiring the property; and
 payments or credits for financing
terms, including pre-paids.
3-6
Financing concessions typically include:
 origination fees,
 discount points,
 commitment fees,
 appraisal costs,
 transfer taxes,
 stamps,
 attorneys’ fees,
 survey charges,
 title insurance premiums or charges,
 real estate tax service fees, and funds to
subsidize a temporary or permanent
interest rate buydown (if these fees are
not considered common and customary
fees or costs based on local custom, as
described above).
Financing concessions can also include prepaid
items, such as:
 interest charges (limited to no more than 30
days of interest);
 real estate taxes covering any period after the
settlement date (only if the taxes are being
impounded by the servicer for future
payment);
 hazard insurance premiums (limited to no
more than 14 months);
 homeowner association (HOA) assessments
covering any period after the settlement date
(limited to no more than 12 months);
 initial and/or renewal mortgage insurance
premiums; and
 escrow accruals required for renewal of
borrower-purchased mortgage insurance
coverage.
3-6
 LOOK AT THE DIRECTIVE TO THE
LENDER OF THE CONVENTIONAL
SECONDARY MARKET!
 Ensure that any and all IPCs have been
identified and taken into consideration.
How does an appraiser accomplish
identifying ALL IPCs? Would an
assumption be called for?
 Provide the appraiser with all
appropriate financing data and IPCs for
the subject property granted by anyone
associated with the transaction.
 Ensure that the property value is
adequately supported.
3-8
3-11
 “If an appraiser identifies and confirms
that concessionary items were included
in a transaction and if the normal
consideration or contract price was
impacted by the concession, an
appraiser should make an adjustment to
approximate the market’s reaction to
the concession’s impact on the
comparable sale’s contract price.
 The existence of concessions will be
dictated by the type and definition of
value used in the appraisal assignment.
 According to USPAP, value is an
economic concept that is an opinion,
based on a specific given time, and must
be qualified.
3-15
1. What percent of the sales have
concessions?
______
2. What was the range of percent of
concessions when measured against the
sale price ___-___
3. Was there a dominant percent of
financial concessions paid?
_______
4. Was personal property typical of the
majority of sales?
_______
1. What percent of the sales have
concessions?
__58%__
2. What was the range of percent of
concessions when measured
against the sale price _0%_-_6%_
3. Was there a dominant percent of
financial concessions paid?
__No-majority were > 5%__
4. Was personal property typical of
the majority of sales?
_Yes-8 out of 12 sales had some
personal property in the sale__
 The Appraiser recognized that
personal property exchanged in
many of the sales. Such
property did not in the
appraiser’s opinion affect the
price. Personal property such
as refrigerator, fireplace
equipment, curtains are gifts of
the seller to the buyer that had
no value to the seller at the
time of the exchange. The lack
of these items would not have
affected or prevented the sale
thus the appraiser found no
reason to deduct for those
items.
 The block of time needs to be cognizant of
any anomalies such as a season or an
event which may have a temporary
“frictional” impact.
4-1
 Based on that effective date time being a
factor would be a probability for any sale
that was greater than six months because
the market is showing a Stable – Property
Value and projected future marketing time
of no greater than six months.
Effective Date is 07/21/12
Question-What is the projected
time of year 3-6 months is
stating?
4-6
4-6
4-5
1. Which sale(s) appear to be over 6 months?
_______________________________
2. Based on the One-Unit Housing Trends stated the market
would a time adjustment be warranted? ___________
4-5
1. Which sale(s) appear to be over 6
months? ____Sale #3 is 8 months
old_____
2. Based on the One-Unit Housing
Trends stated the market would a time
adjustment be warranted? __Yes___
4-8
 Case Study of Decline using the Equity Yield
Rate
Sale Price (based on 2000 prices) $175,000.00
Cost of Sale (estimated at 7%)
- 12,250.00
Less Equity Invested
- 10,000.00
Less Balance
- 157,027.13
Equals Net Income
($ 4,277.13)
Divided by the Equity
÷ 10,000
Divided by the years of holding
÷
5
Equals the Equity Yield of the Investment
= - 8.5543%
 Since the decline is measurable the appraiser must then
consider if the decline is continuing over the past 12
months in order to accurately make time adjustments
for comparable sales. If the local trends show that the
prices have remained unchanged for the last year but
the concessions have risen from a dominant 1% to a
current 4% then the net value to the seller has decline.
 Example:
Median Sale Price unchanged past 12 months
Seller Concessions @4% of Sale Price
Net to Seller
$175,000
- 7,000
$168,000
 One Year Ago
Median Sale Price unchanged past 12 months
Seller Concessions @1% of Sale Price
Net to Seller
$175,000
- 1,750
$173,250
Decline annual rate
3.03%
Please keep in mind this is the study of a statistical pointthe better study would include the study of several
comparable transactions to ensure more than one
behavior was studied.
-0.03 ÷ 12 months = 0.0025
monthly change
Sale = 14 months
0.0025 x 14 months = -0.035 +
1 equals a multiplier
0.965 factor
Sale Price $125,000
Time Adjusted Sale
0.965 x Sale Price = Current
Time Adjusted Value
$120,625 adjustment =
(4,375)
 The increase in seller concessions over the past
year has given the appraiser reason to believe
than any sale greater than 6 months requires a
time/market condition adjustment. The annual
percentage of decline is -3.6% (0.0030 per month).
The effective date of the appraisal is 02/10/13.
Any finance concession above 2% was considered
excessive and required deduction proportionate to
the excessive amount of difference (i.e. 3% would
have a 1% deduction).
4-9
4-9
Sale #2 was 7 months old therefore
0.003 x 7 x 290,000 = $5,460
Sale #3 was 8 months old, thus
0.003 x 8 x $265,000 - $6,360
5-4
Cul-de-Sac Market 1 clearly sells for less and takes longer to market-those lots
that back up to the parking lot of the apartment complex. If the size and
shape are similar and most cul-de-sac lots have similar irregular pie-shape
configuration, the difference can be attributable to the location.
The difference in the location between the two markets is:
The difference in Market 1 between the left side and right is:
27.7%
5.8%
5-5
5-3
Class Discussion Case Study:
Lot 35 recently sold four months ago for $173,000
and Lot 15 sold last month for $168,000. On
the premise that there is a similar design and
style of dwelling and all other physical
characteristics are similar what is the indicated
location adjustment?
Lot 35
Lot 15
Sale Price
$173,000
$168,000
 Location Adjustment
$5,000 or 9.5%
 Residential Leasehold land is seen
throughout the U.S.-it’s usually a
long-term set up after the land has
been harvested or quarried.
 The four most important types of
leasehold estates are:
1. Estate for Years
2. Estate from Period to Period
3. Estate at will and
4. Estate at Sufferance
Only an Estate for Years is suitable
for residential development as the
term of the ground lease needs to be
greater than the economic life of the
improvement.
5-6
5-15 and 5-16
 Step 1- identify sales of similar
properties
 Step 2- develop adjustments for
varied lease terms
 Step 3- develop a capitalization
rate
 Step 4- deduct the capitalized
value from the fee simple interest
conclusion of similar land uses for
the leasehold value
 Go to bottom of page 5-27 for
mathematical example
6-3
 Before you can value the site you
must first identify the
characteristics of the site and the
forces that create the value.
Demand is based on
 Utility
 Scarcity
 Affordability/Transferability
Land Area is viewed both in its
dimensions and its size:
 Acre
 Front Foot
 Square Foot
 Waterfront Feet
Recognizing
Relevant Land
Characteristics
Other factors relevant to
valuing land
 Location in the development (is it
considered a Prime Location?)
 Cleared or is it Raw?
 Topography
 Linkages and Access-a key factor
in marketability which is
preliminarily discussed in the
Neighborhood
 View
 FEMA Flood Zone
 Utilities
6-4
Recognizing
Relevant Land
Characteristics
6-6
 The site analysis is critical to
understanding the land value of the
subject and the competing sites.
 Unlike the Sales Approach where
adjustments are made downward for
superior characteristics this analysis
identifies the competing sites
characteristics as being favorable,
inferior or similar to the subject through
the mathematical directors
Conducting a Site
Analysis
Comparative position
Symbol of Impact when compared with subject site
Favorable Competing Site
+ A plus sign shows the position of the comparable
Inferior Competing Site
- A minus sign shows the position of the comparable
Similar Competing Site
= The equal sign signifies similarity of comparable to subject
6-12
The Sales Approach of vacant land
is the preferred method
For Built – Up areas the remaining
two best methods are:
Allocation and
Extraction
For Income Properties the Land
Residual Method is also available
Site Valuation
Methodologies
6-13
 You can also use the Allocation method to
identify market reaction differences.
 Note Page 6-13 where land value has been
reconciled at 19%. Compare Sale 2 to Sale 3.
Sale No. 2
Land V. $23,750
Dollar Difference $2,090
Sale No. 4
$21,660
Sq. Ft. 7,300
SF Difference
5,100
2,200
$ Difference $2,090 ÷ Sq. Ft. Difference 2,200
Equals Market Reaction to Size $0.95 per Sq.Ft.
Pg. 6-16
4/4 10%
3/4 20%
2/4 30%
¼ 40%
 Consider the overall quality is the
same but there is a slight variance
that the market recognized for
upgrade in quality of a floor cover
 The Contribution Rate is the same
92.2%
Floor Cover %
Floor Cover New
Contributes
Contribution
RCN House 1
$175,000
x
12%
$ 21,000
x 92.2%
$ 19,362
Value Adjustment $7,044
Rounded to $7,000
RCN House 2
$167,000
x
8%
$ 13,360
x 92.2%
$12,317.92
7-3 & 7-4
7-6
Age of Improvements (Year Built)
 When adjustments are made to
the appraisal for the year built,
whether those adjustments are
made for the actual age or for
the effective age of the subject
property, the appraiser must
provide an explanation for the
adjustments.
7-6
 One method for adjusting for age or effective age differences
involves a method that employs a depreciation rate.
Cost New
less Present Worth
equals Dollars of Depreciation
Sale #1
Sale #2
Sale #3
Sale #3
$108,500.00
$109,200.00
$120,000.00
$110,000.00
$90,000.00
$97,200.00
$102,000.00
$100,500.00
$18,500.00
$12,000.00
$18,000.00
$9,500.00
Dollars of Depreciation
divide Cost New
equals percent accrued
depreciation
$18,500
$108,500.00
$12,000
$109,200.00
$18,000
$120,000.00
$9,500
$110,000.00
0.170507
0.109890
0.150000
0.086363636
divide by Acual Age
equals ave. annual dep. Rate
12
0.014208909
8
0.013736264
11
0.013636364
6
0.014393939
Depreciation Rate Reconciled
0.014
Sale Price
Land Value
Improvement
Comparable 1
$112,500
- $ 22,000
$ 90,500
Comparable 2
$119,200
-$ 22,000
$ 97,200
Actual Age
12
Market Depreciation x 0.014
Accrued Depreciation 0.168
Economic Life
x 60 years
Effective Age
10.08 years
Rounded EA
10 years EA
8
x 0.014
0.112
x 60 years
6.72 years
7 years EA
Differences
Improvement Value Difference
Divided by Older Comparable
÷
Equals Percent of Total Difference =
$6,700
$90, 500
0.074033
÷ Divide by
Effective Age Difference
Per year EA Adjustment
3 years
0.024678
=
7-7
8-9
Although room count appears
on most residential forms prior
to the Gross Living Area (GLA)you must first identify what
the adjustment is for GLA in
order to determine if there is a
market that chooses to pay in
addition to the GLA for the
additional functional utility of
additional rooms.
Example:
Comparable Sale 1 Versus Comparable Sale 3
Sale Price
$150,000
$142,000
Land Value
- 45,000
- 40,000
Improvement VB
$105,000
$102,000
GLA
1,700 sq. ft. 1600 sq. ft.
Adj. sq. ft. GLA
- $ 3,500
-0Adj. VB
$101,500
$102,000
Room Count
9/4/2
8/3/2
VB means Value of the Building
In this paired sales analysis the additional
bedroom would be seen as a functional superadequacy
8-9
8-9
Example:
Comparable Sale 4 Versus Comparable Sale 5
Sale Price
$155,500
$149,000
Land Value
- 45,000
- 40,000
Improvement $110,500
$109,000
GLA
1,825 sq. ft.
1850 sq. ft.
Adj. sq. ft. GLA -0- (25 sq. ft. not adjusted) -0Adj. VB
$110,500
$109,000
Room Count
9/4/2
8/3/2
In this pairing the additional bedroom is recognized as
being worth $1,500.00.
 Paired sales analysis is not always
available due to the insufficient
quantity of sales in the area. When no
credible conclusion can be extracted
from the pairing of sales an
alternative is to utilize the
depreciation rate from the market,
deducting for the items in the
replacement cost new such as
plumbing and electrical fixtures to
derive at a net value. The difference
between the comparable sales net
value and square footage will indicate
an adjustment for the difference in the
per square foot unit of measure.
8-10
How to Adjust for
the Gross Living
Area
8-10
How to Adjust for the Gross Living Area
Comp. 1
Comp. 2
Comp. 3
Comp. 4
GLA sq. ft.
1,900
2,200
1,700
1,800
RCN per sq. ft.
$70
$69.40
$71.50
$70.25
Total RCN
$133,000
$152,680
$121,550
$126,450
X 45%
($59,850)
X 45%
($68,706)
X 45%
X 45%
($54,697.50) ($56,902.50)
$73,150
$83,974
$66,852.50
$69,547.50
Depreciation
- 10,972.50 - 12,596.10 -10,027.88
(15%)
(15%)
(15%)
-10,432.13
(15%)
Net Value
$62,177.50 $71,377.90 $56,824.63
$59,115.38
Items not part of
GLA in RCN
= % of RCN per sq.
ft.
Net RCN for GLA
8-10
How to Adjust for the Gross Living Area
Comparison 1
Net Value
GLA
Comp. 1 versus
$62,177.50
1,900
Comp. 2
$71,377.90
2,200
Indicated Adjustment Per Square Foot for GLA Difference $30.67
Difference
$9,200
÷ 300 sq. ft.
8-12
Comparison 1
Comparison 2
Comparison 3
Comparison 4
Comparison 5
Reaction
$30.67
$26.76
$30.62
$29.11
$30.66
x
% Weight = $ Adj
15%
$ 4.60
30%
$ 8.03
40%
$12.25
10%
$ 2.91
5%
$ 1.53
100%
$29.32
Adjustment for GLA
9-8
 Increasingly Quest Quarters are becoming part
of the real property improvement. In part our
culture is changing which has placed a demand
on these living areas as the “baby boomers”
now become a sandwich generation finding
they are still assisting grown-children and also
assuming responsibility for their parents.
 These changes in times bring about changes in
the design of the residential properties which
will often have attached or semi-attached or
even detached quest-quarters.
 The function of the additional space is seen as
having function for the privacy of those who
are sharing their residence with other
dependent family members.
9-8
Item
Sale #1
Sale Price
$350,000
$275,000
Less Land
- 50,000
Value
Improvemen $300,000
t
Sq. Ft. GLA 2,700
- 50,000
Adjusted
Value
Quest
Quarter
Dollar
Difference
Adjustment
Sale #2
Adjustment
$225,000
-13,500
2400
$286,500
$225,000
Yes
No
$61,000 for the 1,200 sq. ft. 2-Bed/2Bath Guest Quarter
9-8
 Consult with local licensed
property managers and real estate
agents to get their input on the
contribution of the area and
 Perform a depreciated cost
approach for the contribution
 Sometimes when there are no clear
sales an alternative to concluding a
value contribution is to research Return
On Investment (ROI) studies and based
on the physical condition of the
amenity the ROI study can then be
applied.
Example:
Outdoor Kitchen Cost New
Installed 3 yr.’s w/15 yr life
20% depreciated (3÷ 15)
Net Remaining
Multiplied by the ROI
Contribution
$18,000
- 3,600
$14,400
x 50%
$ 7,200
9-8