1. The Sales Comparison Approach Basic Real Estate Appraisal: Principles & Procedures – 9 th Edition © 2015 OnCourse Learning Chapter 8

2. STUDENT LEARNING OUTCOMES List and Explain the Four Steps in the Sales Comparison Approach Explain the Important Concepts Behind the Approach Explain How to Decide if a Sale is Comparable Discuss what Information about a Comparable Sale should be Collected Identify the Major Sources of Market Data Outline the Statistical Techniques that can be used to Analyze Sales 2 Page 230 © 2015 OnCourse Learning

3. 8.1 INTRODUCING THE SALES COMPARISON APPROACH Four Steps in the Sales Comparison Approach 3 Page 231 © 2015 OnCourse Learning

4. OUTLINE OF APPROACH 1.Research Comparable Sales MLS, Public Records, etc. 2.Analyze & Compare Sales to the Subject Property & Each Other How Much Do They Differ in $’s, and Why? 3.Adjust for Differences Between the Sales and the Subject Property 4.Arrive at a Value Estimate for the Subject Property as Indicated by the Adjusted Sales 4 Page 231 © 2015 OnCourse Learning

5. KEY CONCEPTS OF SALES APPROACH Importance of the Principle of Substitution A Well-Informed Buyer will not Pay an amount Greater than the Cost of Acquiring or Building an Equally Desirable Substitute Property Buyers Compare Competitive Listings Sellers set Asking Prices based on Recent Sales 5 Page 232 © 2015 OnCourse Learning

6. KEY CONCEPTS OF SALES APPROACH Simplicity Simpler and More Direct than other approaches More Reliable (given enough data) Less Possibility for Errors to Occur in the Processing of the Data Often the Easiest to Explain to Clients and Users of Appraisals 6 Page 233 © 2015 OnCourse Learning

7. KEY CONCEPTS OF SALES APPROACH Statistical Connections Sampling of Market Activity Most Probable Price (i.e. Probabilities) Bracketing Does the Price or Value Lie Within the Range? Data Selection Select Some Sales Better - Some Sales Worse 7 Page 234 © 2015 OnCourse Learning

8. KEY CONCEPTS OF SALES APPROACH Adjustments Adjustment Techniques Help Identify Key Property Differences The Techniques Also Help Indicator How Much to Adjust for Differences Adjustments Allow Reader / Client to Objectively Review and Understand 8 Page 235 © 2015 OnCourse Learning

9. KEY CONCEPTS OF SALES APPROACH Use of Market Data in Other Approaches Data is Essential to All Three Approaches Land Value for the Cost Approach Extract Support for and Estimate of Accrued Depreciation used in the Cost Approach Market Rents Used in the Income Approach Capitalization Rates Derived from Data Objectivity Analysis will be Evidenced by the Market Data Collected and Analyzed 9 Page 235 © 2015 OnCourse Learning

10. 8.2 COLLECTING SALES DATA Criteria For Selecting Comparable Sales Competitive Property Reasonable Substitute for Subject? Appeals to the Same Buyers (Submarket)? Same Important Characteristics? Open-Market Transactions Unusual Conditions or Circumstances? Date of Sale Close in Time (Contract Date vs. Escrow Date) 10 Page 236 © 2015 OnCourse Learning

11. SELECTING COMPARABLE SALES (Con’t.) How Comparable Must It Be? As Comparable As You Can Find Similar in Time of Sale & Location Similar Size, Age & Important Characteristics 11 Page 239 © 2015 OnCourse Learning

12. SELECTING COMPARABLE SALES (Con’t.) Defining the Sales Search Area Many Sales (Small) vs. Few Sales (Expanded) Consider & Analyze Sales History of Subject Three Years Prior to Date of Sale (USPAP) Past Sales, Listings, Pending? Ask About It! 12 Page 239 © 2015 OnCourse Learning

13. WHAT INFORMATION IS NEEDED? Sales Transaction Data Date of Sale (“meeting of minds” vs. COE) Price and Terms of Sale (Financing, Concessions) Legal Description Grantor and Grantee (Related?) Personal Property Included, if any Motivation of Parties (Circumstances, etc.) Physical Characteristics of Sale Land: Size, Shape, Topography, Available Utilities Improvements: Size, Type, Quality, Condition 13 Page 242 © 2015 OnCourse Learning

14. WHAT INFORMATION IS NEEDED? Legal Data Zoning Taxes and Special Assessments Public and Private Restrictions Location (General & Specific Desirability) Comparability Detrimental Influences? Market Conditions General State of the Market (Impact on Price) Availability and Type of Financing 14 Page 244 © 2015 OnCourse Learning

15. WHAT INFORMATION IS NEEDED? Using Listings and Offers Typically Not a Substitute for Closed Sales However, in Uncertain or Changing Markets Clients ask for Analysis of the Competitive Market They Provide Good Evidence of Trends and Attitudes on Date of Value (vs. Historical Sales) Listings tend to Set the Upper Limit of Value Reject Offers tend to Set the Lower Limit Talk to Market Participants 15 Page 245 © 2015 OnCourse Learning

16. WHAT INFORMATION IS NEEDED? How Many Sales? Three Good Sales May Be Good Enough Less Reliable Sales May Require More Know Client Requirements / Expectations Intended Use May Dictate Number of Sales Verification of Data Dig Deeper If Price Appears Out of Line Improves Data Reliability Inspect (to the degree practical / necessary) Cross-Check with Another Source 16 Page 246 © 2015 OnCourse Learning

17. SOURCES OF MARKET DATA Public Records Deeds indicate Grantor, Grantee, Legal Description, Dates, Mailing Address of Buyer, and Documentary Transfer Tax Deeds of Trust (Mortgage), Notice of Default Assessor’s Records will provide Assessor’s Parcel Number (APN), Assessor’s Maps, Zoning and Property Characteristics Maps of Record (Parcel Maps, Subdivision, etc.) 17 Page 248 © 2015 OnCourse Learning

18. SOURCES OF MARKET DATA (Con’t.) 18 Page 249 © 2015 OnCourse Learning Documentary Transfer Tax $1,039,090 / $500 = 2,078.18 2,078.18 X $0.55 = $1,143+/- $1,143.00 / 0.0011 = $1,039,090 (Shortcut Calculation) Assessor May Receive a Preliminary Change of Ownership (PCOR) - Discloses the Price and Terms (Not Necessarily Public Info, May Need Owner’s Authorization)

19. SOURCES OF MARKET DATA (Con’t.) Multiple Listing Services (MLS) Data Sources (NCD, DataQuick, SiteX, RealQuest, LoopNet & CoStar) The Internet (endless list) Parties to the Transaction Appraisal Office Data Files 19 Page 252 © 2015 OnCourse Learning

20. 8.3 DATA SOURCES ON THE INTERNET Websites of Government Agencies General Data on the Economy Regulatory Information affecting Real Estate, Lending and Appraisals Websites of Industry Service Organizations Comparable Sales Cost and Construction General and Other Sites 20 Page 256 © 2015 OnCourse Learning

21. DATA SOURCES ON INTERNET (Con’t.) Websites of Trade Organizations Appraisal Organizations REALTORS® Real Estate Educators Industrial and Office Realtors Architects 21 Page 259 © 2015 OnCourse Learning

22. 8.4 APPRAISAL STATISTICAL CONCEPTS Central Tendency Mean = Average Value Median = Middle Value Mode = Most Frequently Occurring Value Range = Difference Between High & Low Standard Deviation Measurement of How Values Differ From the Mean of All Observations 22 Page 260 © 2015 OnCourse Learning

23. STATISTICAL CONCEPTS (Con’t.) Linear and Multiple Regression Can Calculate and Illustrate Relationships between Property Features and Property Prices Used Increasingly by Appraisers Can Suggest a Property Value. Explored Further in Chapter #9 23 Page 262 © 2015 OnCourse Learning

24. CHAPTER SUMMARY The Sales Comparison Approach is one of the three approaches used to estimate value. The main feature of the Sales Comparison Approach is the process of Analyzing Sales and Comparing them to the Subject property, based primarily on the Principle of Substitution. 24 Page 262 © 2015 OnCourse Learning

25. CHAPTER SUMMARY (Con’t.) The sales comparison approach consists of four steps: Research the sales. Analyze the sales. Adjust the sales for differences between the sales and the subject property. Arrive at a value estimate. 25 Page 262 © 2015 OnCourse Learning

26. IMPORTANT TERMS & CONCEPTS Adjustment TechniquesMean Assessment RollMedian BracketingMode Buyer’s MotivesOpen-Market Transactions Central TendencyPhysical Characteristics Comparable SalesPublic Records Comparable Sales Search AreaRange Competitive PropertySales Comparison Approach ConcessionsSales History Linear and Multiple RegressionSample LocationSeller’s Motives 26 Page 264 © 2015 OnCourse Learning

27. IMPORTANT TERMS & CONCEPTS Standard DeviationVariables SubmarketVerification Terms of Sale 27 Page 264 © 2015 OnCourse Learning