Presentation on theme: "Data Collection, Market Areas and Neighborhoods"— Presentation transcript:
1Data Collection, Market Areas and Neighborhoods Basic Information Needed Before the Three ApproachesWayne Foss, MBA, MAI, CREFoss Consulting Group
2Types of Real Property Fee Simple Estate Definition: Application: Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat.Application:Appraisal of properties which are owner occupied. The owner has all of the bundle of rights.Can be any property type, but most often is a single family residence or condominium
3Types of Real Property, con’t.. Leased Fee EstateDefinition:An ownership interest held by a landlord with the rights of use and occupancy conveyed by lease to others. The rights of the lessor (the leased fee owner) and the leased fee are specified by contract terms contained within the lease.Application:Appraisal of properties which are tenant occupied. The owner has given up the right of occupancy in exchange for the payment of rent from a tenant.Generally thought of as investment properties. i.e.: Apartments, Industrial Parks, Office Buildings and Shopping Centers
4Types of Real Property, con’t Leasehold EstateDefinition:The interest held by the lessee (the tenant or renter) through a lease conveying the rights of use and occupancy for a stated term under certain conditions.Application:Created when the contract rent is less that the prevailing market rent. A leasehold estate has a finite life, the length of the lease contract.Generally found in investment properties. i.e.: Apartments, Industrial Parks, Office Buildings and Shopping Centers when long term leases are involved.
5Information Needed before applying the three approaches These items are needed to knowwhat you are appraising (physically & legally)what problems are involved, and toestimate highest and best useMarket Area AnalysisNeighborhood,Identification of the submarketSite AnalysisImprovement Analysis
6Data Collection Three Broad Categories General Data Specific Data Includes information on the four forces that affect property valueSpecific DataDetails about the property being appraisedCompetitive Supply and Demand DataInventory of competitive supplyAnalysis of prospective demand
7General Data Economic Trends Local Market Considerations International RegionalLocalLocal Market ConsiderationsMacroeconomic and microeconomic studiesMacroeconomic studies are broad (cities and regions)Microeconomic studies are narrow and evaluate the factors that influence the market for a particular parcel of real estateDemographicsStudy of the changing populationGovernment regulations and social attitudesLand Use regulations (i.e. zoning, transportation systems)
8General Data, con’t... Local Market Considerations, con’t.. Purchasing powerdisposable income (the income that remains after deducting income taxes and all other payments to federal, state and local governments)Price levelsrates of change (trends) in overall prices, rents, expensesBuilding fluctuationsrates of change in the issuance of building permitsBuilding costsrates of change in the prices of construction. Items such as labor rates, changes in construction technology, and public regulationsTaxestrends in assessed value and real estate taxesFinancingCost, availability and terms of construction and take-out financing
9General Data, con’t... Sources of General Data Government U.S. Dept of Commerce, Bureau of the CensusU.S. Dept. of Labor, Bureau of Labor StatisticsState and Local planning agenciesLocal University and College Research centersTrade AssociationsAppraisal InstituteUrban Land Institute (ULI)Building Owners and Managers Association (BOMA)Private SourcesMultiple Listing ServicesComputer databasesPersonal Appraisal Files
10Specific Data The subject property Comparable Sales Comparable Rentals Description of the LandDescription of the ImprovementsZoningPotential legal uses allowed on the landComparable SalesComparable RentalsImprovement Cost DataIncome and Expense DataCapitalization Rate DataSpecific Data are used to:Determine the highest and best use of the propertySet the stage for the application of the three approaches to value
11Specific Data, con’t... Investigation of Market Transactions the degree of comparability with the subject propertythe quantity of information availablethe reliability of the dataSources of Specific DataPublic recordsexamples are recorded deeds, assessors records, zoning ordinancesPublished newstrade publications, local business journalsPeople in the industrybrokers, bankers, property managers, developers, appraisersMultiple listing recordssources of information on specific property transactions and details
12Supply and Demand Data Supply Data Demand Data Sources of the Data inventory includes all properties like the subject property that is for rent, rented, sold, on the market, and properties that will likely to be developed.Demand Dataanalyze the prospective demand for property like the subjectanalysis of population trendsresidential and retail propertiesanalysis of employment trendsoffice and industrial propertiesSources of the DataInterviewsPublic RecordsBuilding permits, development plansDemographic data
13Neighborhood - Market Area Why Analyze The Market Area?To identify the submarket in which the subject competes for buyers and tenants.The property appraised is “fixed” in its location and subject to location influences (External forces)To help identify which sales are “comparable”To help forecast conditional sales price of subject; an appraisal is a conditional forecast,To help establish the submarketHelps to determine the stability of an area. May also indicate future land uses and value trends.
14The Market A “Submarket” may be described in terms of: Potential usersPotential buyersPrice or rental amount rangeProduct typeGeographic AreaMarket Area defined:The defined geographic area in which the subject property competes for the attention of market participants; the term broadly defines an area containing diverse land uses.
15Neighborhood aka Market Area Definition:A group of complementary land uses; a related grouping of inhabitants, buildings, or business enterprises.ConceptsAn area of similar or compatible land uses (zoning)An area of similar building types, ages or stylesAn area within which any change has an immediate direct influence on the value of the appraised property.The area within which the subject competes with other properties.Population characteristics, in habitants of similar age or economic profileThese concepts apply to any property type
16Neighborhood aka Market Area Definition:District: A type of neighborhood characterized by homogeneous land use.Distinctions between Neighborhoods and DistrictsA neighborhood may contain several uses that complement one another.Example: a neighborhood may contains single family homes and commercial properties that provide services to local residents.A district contains one predominant land useAn apartment or industrial district, or office park
17Neighborhood Boundaries The area in which the forces that influence value operate on all surrounding properties in the same way that the forces operate on the property being appraised.Boundaries may be:PhysicalNatural - rivers, lakes, mountains, oceanMan-Made - streets, highways, different uses, railroadsPolitical - city, county, districtUseChange from Single family to multifamily residential use.Change from residential to commercial, industrial or agricultural use.
18Identification of Neighborhood Boundaries Examine the physical characteristics of the areaLook for type of structures, land use, topography, access, etc.Draw preliminary boundaries on a map.Test the preliminary boundaries against demographic dataobtains information about the people living within the areaAsk people who know the areaSuch as residents, brokers, businesspeople, other appraisersThe people who live and work in the neighborhood have the best understanding of the market area.
19Neighborhoods and Districts Are constantly changing (principle of change)Questions to ask regarding the changesAre there new Uses?Are there changes in density?Is there an increase in commercial influence in a residential neighborhood?Are many properties on the market?Relationship between owner and tenant occupancy.Rapid changes in one neighborhood may impact another.
20Neighborhood Life Cycles Four StagesGrowthA stage in a neighborhood’s life cycle in which the neighborhood gains public favor and acceptanceStabilityexperience equilibrium without gains or lossesDeclinediminishing demandRevitalizationrenewal, modernization, increasing demand
21Neighborhoods and Districts Four Broad Categories for AnalysisPhysical (Environmental)Consideration of any natural or man-made featuresLocation within the communityLinkagesTransportation systemsProximity to employment, shopping schools, recreationTopography, soil, climate, viewLand use patternsAge, type, condition and appearance of structuresAdequacy, cost and quality of services
22Neighborhoods and Districts Legal-governmentalTaxation and special assessmentsPublic and Private RestrictionsSchoolsPolice and Fire ProtectionPlanning and Development ActivitiesEconomic - financialProfile of the ResidentsType of financing (and terms) availablePrice and Rent LevelsConstruction, conversion, and vacant landExtent of Owner OccupancyVacancy RatesChanges in use or economic base
23Neighborhoods and Districts Social - marketRelates to the status, physical environment, services affordability and conveniences of a locationPopulation DensityAge and Income Levels of occupantsCrime Rate
24Districts Apartment districts Commercial districts generally subject to the same influences as single-family residencesemphasis on parking and vacancy ratesCommercial districts1. Central Business District (CBD)Definition: The core, or downtown area, of a city where the major retail, financial, governmental, professional, recreational, and service activities of the community are concentrated.Transportation in most communities oriented to CBDMany of the CBD’s are undergoing changesRevitalizationChanges in Land Use; from commercial to office or entertainmentDecline; lose business to suburbs
25Districts 2. Regional Shopping center 3. Community Shopping center Definition: A shopping center that offers a variety of general merchandise, apparel, furniture, home furnishings, services, and recreational facilities and is built around one or more full (anchor) department stores of at least 100,000 square feet each.Analyze Trade Area and Competition (both existing and proposed)3. Community Shopping centerDefinition: A shopping center of 100,000 to 300,000 square feet that usually contains one junior department store, a variety store or discount department store, a supermarket, and specialty stores.Trade area generally 10 to 20 minutes driving time4. Neighborhood Shopping CenterDefinition: The smallest type of shopping center, generally with a gross leaseable area of less than 100,000 square feet. Anchors are generally a supermarket and drug store, and possibly a bankTrade area generally 5 to 10 minutes driving time
26Districts Office Districts Industrial Districts Include planned office parks and strip developments on major arteriesSensitive to access and support services (restaurants, hotels and convention facilitiesIndustrial DistrictsMany formslarge old complexes with heavy industrymodern new complexes with light manufacturing or distribution warehousingAvailability of LaborAvailability of Raw materialDistribution facilitiesLinkages such as highway system, rail, water, air
27Districts Agricultural Districts Specialty Districts Soil type, land use, crops grown and water supplySpecialty DistrictsMedicalhospitals, health care facilities, medical buildingsResearch and Development ParksUniversities, departments of large companiesHigh Technology Parkselectronics and computer firmsEducation DistrictsColleges, Universities, or community collegessupporting housing and servicesHistoric Districts
28Neighborhood aka Market Area example items to know Example items to consider, understand, and know about a neighborhood:Age Income LevelsRents typical equitycleanliness reputationproperty condition, repair statustypical time on the market to sell (or lease) the property
29Neighborhood aka Market Area example items to know, con’t Prices, rentsVacancyTurnoverParksSchoolsGovernment servicespolice, fire, trash, etc.Occupant attitudesProximity to employment, recreation, shoppingViewsDesign, layoutZoning, use restrictionsCommon areasHomeowners association cost and benefitsCrimeRelative direction of growth
30So That’s Data Collection, Market Areas and Neighborhoods Are there any Questions?Wayne Foss, MBA, MAI, CRE, Fullerton, CA USAPhone: (714) Fax: (714)