# ANALYZING AND ADJUSTING COMPARABLE SALES Chapter 9.

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ANALYZING AND ADJUSTING COMPARABLE SALES Chapter 9

CHAPTER TERMS AND CONCEPTS Automated valuation model (AVM) Comparison process Date of sale Depreciated cost method Direct comparison method Economic unit of comparison Elements of comparison method Gross income multiplier (GIM) Linear regression Location elements Lump-sum dollar adjustment Matched pair Multiple regression Percentage adjustment Physical elements Physical unit of comparison Sales adjustment grid Sales graph Terms and conditions of sale Total property comparison Unit of comparison Value range 2

LEARNING OUTCOMES 1.Name the four elements of sales comparison. 2.List the three rules for making adjustments. 3.Name the three types of adjustments most commonly used. 4.Explain how a value conclusion is reached. 3

Which is more attractive to buyers? 4

ELEMENTS OF COMPARISON Terms and Conditions of Sale Time of Sale Location Physical Features 5

Elements of Comparison 6

PRICE VS. TERMS OF SALE Seller Financing Better or worse than Standard? Assumed Financing Better terms? Seller-Paid Points Generally, Buyer pays points. In a Buyers market, Seller may pay points 7

COMPARING & ADJUSTING SALES Identify and Compare Sales Characteristics Make Market-Derived Adjustments that are: Reasonable Are consistent among the sales Explain the price differences between the sales & subject 8

RULES FOR MAKING ADJUSTMENTS Adjust the Sale to the Subject Use Market-Derived Adjustments Adjust in the Proper Order Terms/conditions Time Location Physical features 9

TYPES OF SALES ADJUSTMENTS Lump Sum Dollar Percentage Units of Comparison 10

The Adjustment Process 11 Figure 9-2

URAR FORM ANALYSIS GRID 12 Figure 9-4

UNITS OF COMPARISON SALES ADJUSTMENTS Total Property Price of similar sale May involve ranking the sales Physical Units Price per square foot, price per acre Price per room Price per dwelling unit Economic Units Price per buildable dwelling unit Price per developable building area Gross income multipliers 13

GRAPHING THE SALES 14

USING MATCHED PAIRS Adjusting Sales with the Direct Market Method Finding Adjustments for Size Subject: 2,600 SF living area Sales: Similar, except different in size Adjustment: Search for sales differing only in size 15

USING MATCHED PAIRS Evidence o 2,500 SF o 2,700 SF Calculation: o Sale SizePrice o B=2,700 SF\$280K o A= 2,500 SF\$270K o Difference 200 SF\$10 K Adjustment for Size: 16 \$10,000÷200 SF = \$50 SF Change

ESTIMATING ADJUSTMENTS BY DEPRECIATED COST Difference Subject has 440 SF garage Comparable sale has no garage Unit cost new is estimated at \$33.50/SF Cost New of Garage Size 440 SF @ \$33.50 per SF Total replacement cost o 440 SF X \$33.50 per SF = \$14,470 17

ESTIMATING ADJUSTMENTS BY DEPRECIATED COST Depreciation Age of subject garage = 29 yrs Economic life = 100 yrs % depreciation = 29/100 = 29% Amount of depreciation is 29% of \$14,470 or \$4,275 Adjustment Amount Cost new\$14,470 Less: Depreciation- \$4,275 Equals: Amt. of adjust rounded\$10,000 18

ADJUSTING FOR SALE TERMS OR CONDITIONS 19

Using Linear Regression to Analyze Sales 20 Figure 9.8

AUTOMATED VALUATION MODELS Computer Software Program Analyzes data in specified area or neighborhood Relates results of database search to subject property information imputed into the model. When Applied to an Individual Property It Is Not an Appraisal. An AVM May Become the Basis for an Appraisal 21

ARRIVING AT AN INDICATED VALUE 22

ARRIVING AT AN INDICATED VALUE Review the Entire Approach Comparability Activity levels Adjustment accuracy Statistical limits Lagging the market Motivation 23

ARRIVING AT AN INDICATED VALUE Review the Sales Data Sales data Adjustments Estimate Value Range Value range shown by comparable Upper and lower limits Select a Final Value 24

SUMMARY 25 Analyzing and adjusting comparable sales rely on two main methods: the direct comparison method and the elements of comparison method. The direct comparison method simply compares the overall desirability of each sold property with that of the subject, without any adjustments. The elements of comparison method compares the sales with reference to the details of four critical elements: the terms and conditions of sale, the time of sale, the location elements, and the physical elements of the properties.