Write a brief summary of the textbook Chapters 5 & 6, to include the following paragraphs with headings: an overview, 3 key concepts, and a summary. Each key concept must include the textbook page numbers.
TEMPLATE:
Overview
Key Concept from Chapter 5
Key Concept from Chapter 6
Key Concept from Chapter 5 or 6
Summary
Victor Valley College
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2
The function of education is to
teach one to think intensively
and to think critically.
Intelligence plus character
that is the goal of true
education.
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3
Data Collection and
Analysis
Educating Generations, Building Communities
I.
Understanding Data
II. Regional and Community Data
III. Neighborhood Data
IV. Site Data
V. Building Data
VI. Specific Market Data
VII. Total for Mobile® App for Appraisers
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Part I.
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Understanding Data
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Educating Generations, Building Communities
? Data collection and analysis is the third step in the orderly process of
appraisal.
? It is important to keep in mind, however, that data selection and
gathering, as well as analysis, is an integral and ongoing part of
virtually the entire appraisal process.
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?
GENERAL DATA
?
SPECIFIC DATA
?
TREND DATA
?
SUPPLY AND DEMAND DATA
?
PRIMARY
?
SECONDARY
?
MARKET TREND DATA
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Government statistics indicate a trend for smaller households
(number of persons within a household). This would seem to
indicate that demand should be increasing for smaller homes.
However, government statistics also indicate an increasing trend for
multiple income households. This data is apparently more relevant
than household size in that the demand for larger homes has been
related more to household income and interest rates than to the
size of the household.
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? Competitive supply and demand data is a form of market trend
data, one that is more closely tied to a particular local market.
?
SUPPLY DATA
?
DEMAND DATA
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Educating Generations, Building Communities
In analyzing the competitive supply of single-family residences in
a market, an appraiser would consider the existing supply of
houses, the supply of vacant land available for residential
development, and also the supply of properties that might
reasonably be converted to residential use in the future. All of these
might prove competitive to the subject property in its future market.
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? SUBJECT PROPERTY DATA is any data that pertains specifically to
the subject property.
? This includes physical characteristics such as size and number of
rooms, floor plan, architectural features, landscaping, special
amenities and also includes other specific data that affects the
value of the property, such as terms of sale or special financing
arrangements.
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Educating Generations, Building Communities
? Much of the data required for an appraisal is about comparable
properties.
? A COMPARABLE PROPERTY is a property that is similar to the
subject property in certain key characteristics.
? For a property to be truly comparable, it must:
1. have similar physical characteristics to the subject property;
2. be competitive with the subject property, that is, appeal to the
same kinds of buyers in the market;
3. be located in the same market area as the subject property; and
4. have sold within a limited time from the valuation date (normally
within six months).
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If the subject property is a 3-bedroom, 2-bath ranch-style house
located in a neighborhood of similar houses, the best comparables
will be other 3-bedroom, 2-bath ranch-style homes in the same
neighborhood, that have sold within the last six months. A similar (or
even identical) home in a different neighborhood may not be a true
comparable, since those neighborhood characteristics may appeal
to a different group of buyers.
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Part II.
Regional and Community
Data
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? REGIONAL AND COMMUNITY DATA reflect the effects of local
social, economic, governmental and physical forces on value.
? The interaction of these forces influence real estate values, either
for better or for worse.
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Property values in an exclusive neighborhood of expensive
homes may be enhanced by the scarcity of similar neighborhoods
in a community. On the other hand, if the regional economy is in a
slump, the demand for high-priced homes may lessen, causing
neighborhood values to decline. In either case, the value of homes
in the neighborhood cannot be analyzed without appreciating
outside influences and trends on the regional and community level.
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? The collection and analysis of regional and community data is
essential to the appraisal process for several reasons.
1. it helps the appraiser identify the particular characteristics of
properties that increase or decrease value.
2. helps the appraiser to identify large scale patterns of value
fluctuations.
3. it provides a context for the analysis of local influences on
value.
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Educating Generations, Building Communities
? All data used in an appraisal is collected for one purpose: to
help form a value estimate for a particular subject property.
? Regional and community data is often collected in advance,
without reference to any particular subject property.
? Appraisers maintain files of regional and community data
pertaining to the geographic areas in which they practice.
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? Natural environmental factors (physical features) that can
influence value include climate, topography (the shape of the
land and the location of physical features such as lakes and
streams), potential hazards (such as earthquakes, floods, or
tornadoes), and the presence of natural resources.
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Environmental regulations and restrictions on new development
may enhance the value of property that is already developed. The
regulations and restrictions reduce the supply of developable land,
and may also be seen as enhancing the quality of life in a region.
On the other hand, the same regulations and restrictions will often
have a negative effect on the value of vacant land, since they limit
the potential uses of such land.
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? The appraiser must be aware of the economic forces at work in
the area.
? A major factor here is the areas economic base.
?
The ECONOMIC BASE is the economic activities that support the
people living in the area.
? Areas with strong economic bases draw income from other
areas, increasing local wealth and property values. In contrast,
a weak economic base negatively affects values.
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The computer industry is a major part of the economic base of the
San Francisco Bay area. Computer hardware and software products
developed in the area are sold all over the country and the world,
drawing income from outside areas into the Bay Area. The strength of
this economic base has a major influence on real estate values in the
area.
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? INFRASTRUCTURE refers to public improvements that support basic
needs, such as transportation and utilities.
? Appraisers collect infrastructure data that includes:
1.
2.
3.
4.
public transportation facilities (airlines, railroads, busses);
highways;
power and water supplies; and
sanitation facilities (sewage treatment and solid waste disposal).
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In many areas of the West, agricultural communities are
dependent on irrigation water that is supplied from a system of dams
and canals. This infrastructure of dams and canals has converted
thousands of square miles of worthless desert into valuable and
productive farm land. The value of that land is threatened, however,
by the possibility that irrigation rights may be curtailed in order to
provide more water to support fisheries resources, or to supply
domestic water needs in urban areas.
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? It is a fundamental rule of appraisal that supply and demand
affects value.
? Data about the supply of housing in an area includes:
?
?
?
?
?
?
?
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existing supply of housing of various types and ages
supply of vacant land for residential development
current level of housing construction activity
number of building permits being issued or processed
construction costs (for capital, materials and labor)
vacancy rates
time to sell properties.
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? Demand data also includes population characteristics of the region.
? is the population increasing or decreasing?
? age profile of the region?
? population break down according to income level, education
level, and size/composition of the household?
? population characteristics are likely to change in the future?
? Housing demand within a marketplace is not homogeneous.
? It is stratified; the demand for low-priced homes could be
different than for luxury homes.
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Educating Generations, Building Communities
The average time to sell lower-priced homes could be 38 days,
but the average time to sell luxury homes could be 9 1/2 months.
Similarly, the demand could be different for condominiums than for
single-family homes. Many areas have a glut of condominiums with
stagnant or falling values, while they have a strong market for
single-family homes with increasing values.
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? Population data such as age, income level or household size
are important indicators of SOCIAL ATTITUDES.
? Another important indicator of social attitudes is the level and
type of government regulation.
? Appraisers must be aware of regional and city government
regulations pertaining to zoning, environmental protection,
building standards and the taxation of income, business
activities and property ownership.
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? Some regional and city data, such as climate and topography,
can be gathered through direct observation by the appraiser.
Other data can be obtained from interviews.
? For the most part, regional and community data come from
published sources.
?
?
?
?
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City, County, and State Public Agencies
Federal Government Agencies
Trade Associations
The Internet
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Part III.
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Neighborhood Data
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Educating Generations, Building Communities
? For appraisal purposes, a NEIGHBORHOOD can be defined as a
geographical area in which land uses are complementary and
in which all properties are influenced in a similar way by the
forces affecting value.
? A neighborhood may have more than one type of use.
? When a neighborhood includes only one type of land use, it is
sometimes referred to as a DISTRICT
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Educating Generations, Building Communities
? Neighborhoods have some degree or type of conformity that sets
them apart from surrounding areas.
? The conformity may relate to the age or architectural style of buildings
in the neighborhood, to its zoning classification, to the economic
status of its residents or to some other factor or combination of factors.
? Neighborhood boundaries are often (but not always) some type of
physical feature.
? It is important for the appraiser to establish and justify neighborhood
boundaries for each subject property that is appraised.
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Educating Generations, Building Communities
A residential subdivision may contain homes of similar size,
construction style, and lot size. At first glance, the subdivision may
appear to be a distinct neighborhood. But if one side of the
subdivision borders on a park or waterfront, while the other side
borders on a busy freeway, the appraiser may decide that the
subdivision is actually comprised of two or more distinct
neighborhoods (or sub-neighborhoods), despite the superficial
similarities between the homes.
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? Neighborhood data helps define the potential market for the subject
property.
? Neighborhood data also helps indicate the desirability of the subject
property in relation to homes in competing neighborhoods.
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An appraiser determines that the subject property neighborhood
consists of an area of single-family, 2- and 3-bedroom homes, located 2
miles from the city center. Due to a shortage of recent comparable sales
in the subject neighborhood, the appraiser must use comparables from
another, similar neighborhood. The second neighborhood has homes of
similar size, age, and appeal as the subject neighborhood, but is located
5 miles from the city center. In this case, the appraiser must investigate
whether the added distance from the area business core has an affect on
neighborhood values, and possibly adjust the sales prices of the
comparables from the second neighborhood to account for any
observed value difference.
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Educating Generations, Building Communities
? Many of the sources of neighborhood data are the same as the
sources of regional and community data.
? NEIGHBORHOOD DATA, which includes growth rates, zoning
regulations, population characteristics, taxes and public
services. The major source of neighborhood data is personal
inspection by the appraiser.
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? The appraisers first task in inspecting a neighborhood is to
determine its boundaries.
? It is usually helpful to outline the neighborhood boundaries on
an area map.
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Educating Generations, Building Communities
1. the type of neighborhood
2. physical characteristics and layout
3. percent of development
4. evidence of change
5. quantity, age, and condition of various types of properties
6. traffic patterns
7. presence of negative value influences
8. overall neighborhood quality and appeal
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Part IV.
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Site Data
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Educating Generations, Building Communities
1. SITE DATA is specific data regarding the subject property site.
2. A site is defined as land that has been prepared for use, for example
by clearing, grading and development of access and utilities.
3. In an appraisal, the site is distinguished from its improvements for
several reasons, including:
1.
for highest and best use analysis;
2.
to provide data for certain valuation techniques (such as the cost
approach to value); and
3.
sometimes as a requirement of the appraisal assignment (as in
appraisals for tax assessment purposes).
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Educating Generations, Building Communities
? When preparing a site description, the appraiser should note
whether the property boundaries appear to match the legal
description of the property whether there are any apparent
encroachments
? The appraiser should also note the location of any easements
that benefit or burden the property
? Easements and encroachments should be noted on the site
map.
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? The appraiser will note the width and depth of the lot and also
identity the location and dimension of any frontage.
?
WIDTH
?
DEPTH
?
FRONTAGE
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Educating Generations, Building Communities
In a residential neighborhood where street frontages vary from
80 feet to 100 feet, the difference in frontage will probably not
affect value to any significant extent. On the other hand, residential
properties bordering on a lake or stream may show significant
value differences based on the amount of water frontage for each
lot.
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? The majority of the data needed for the site description is generated
by a personal inspection of the subject site.
? Physical site data includes information about the land itself, its
location and any site improvements.
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Part V.
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Building Data
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Educating Generations, Building Communities
? Building data is used to
help identify and
analyze comparable
properties.
? Another main reason
for collecting building
data is for use in the
cost approach to
value.
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Educating Generations, Building Communities
If the subject property is a 3-bedroom, 1-bath, ranch style
house, the appraiser will look for other 3-bedroom, 1-bath ranch
style houses to serve as comparables for the sales comparison
approach to value. The appraiser will then adjust the values of the
comparables to account for differences in building characteristics,
such as differences in total square footage, building age, or quality
of construction.
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? There are any number of ways to categorize building data, and
no one way is the best.
? For our purposes here, we will categorize building data
according to the following eight areas:
1. General Data
5. Interior Data
2. Building Dimensions
6. Equipment/Appliance Data
3. Sub-Structure Data
7. Energy Efficiency Data
4. Exterior Data
8. Special Feature Data
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? The first item of general data is a general description of the building: its
overall size, number of living units, number of stories, architectural
style and placement on the site.
? General data also includes a general description of each room in the
structure, including its function (bedroom, living room, kitchen, etc.),
and location (basement, first floor, second floor, etc.).
? The front and rear view photos are taken at an angle to show the sides
of the house and a view of the street.
? The appraiser indicates the buildings location on the site map, and
makes a sketch of the floor plan.
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? The overall size of a building is measured according to its
outside dimensions.
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? SUB-STRUCTURE DATA (also known as foundation data) is information
about the parts of the building that are below (or mostly below) grade
level: the foundation and, if applicable, the basement or crawl space.
? The foundation must be described in terms of its type and condition.
? When inspecting the sub-structure, the appraiser should pay careful
attention to evidence of settling, moisture penetration, or infestation
by termites, rodents or other pests.
? In the case of basements, the appraiser will note the size of the
basement area, and describe the ceiling, wall, and floor finishes of
any finished areas of the basement. If the basement includes an
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access door, this fact is also noted.
53
Educating Generations, Building Communities
? Important EXTERIOR BUILDING DATA includes the type and condition of
roofing materials, gutters and downspouts, exterior siding and trim,
windows and window accessories, and exterior doors.
?
Gutters and downspouts
?
Exterior wall materials
?
Windows
?
Exterior doors
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? INTERIOR DATA is concerned with the type and quality of interior
finishes.
? This data not only reveals any repairs that may be necessary,
but gives a good indication of the overall quality of the
buildings construction.
? The quality of interior finishes has a big impact on the
construction cost of a home, and has the potential for a similar
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impact on value.
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Educating Generations, Building Communities
? Particular attention is paid to bathroom and kitchen finishes, as
these tend to be more expensive and also more subject to
water damage, requiring costly repairs.
?
PROJECT CARPETS
? Substandard quality may detract from value, and an abovenormal quality may not add significantly to the homes value.
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? The appraiser must note the specifications of the major equipment
systems of the subject property, and identify any appliances that are
included in the value estimate.
? Major equipment systems for most residences include electrical,
plumbing and heating systems; cooling systems are also standard
features in many parts of the country.
? Finally, the appraiser will record the make, model, and condition of
any appliances included in the appraisal.
? The importance of evaluating quality CANNOT be minimized.
Otherwise you could be comparing apples with oranges and your
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will be flawed.
57
Educating Generations, Building Communities
? As energy costs rise, buyers place greater and greater value on
the energy efficiency of a house, especially in areas of extreme
winter cold and/or summer heat.
? EER (Energy Efficiency Ratio) is a measure of energy efficiency;
the higher the EER the higher the efficiency.
? Energy efficient heating and cooling equipment, as well as solar
design features, may also provide desirable energy cost
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savings.
Educating Generations, Building Communities
? SPECIAL FEATURE DATA includes any items that may affect value.
? Some common special feature data include:
?
size and type of car storage (attached or detached garage or carport);
?
type of attic access, and attic improvements (flooring, heating, finished
areas);
?
porches, patios and decks;
?
outbuildings (sheds, gazebos, storage buildings);
?
fences and walls;
?
fireplaces; and
?
pools and spas.
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Part VI.
Specific Market Data
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Educating Generations, Building Communities
? This is data that relates to comparable properties in the
marketplace.
? To identify the comparable properties in the first place, the
appraiser must identify their neighborhood, site and building
characteristics.
? The site and building data needed for comparable properties is
similar to that required for the subject property.
? Indeed, some of the most reliable comparable property data is
obtained from the appraisers own files on previous appraisals.
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? One of the key pieces of data for the sales comparison
approach to value is the sales prices of comparable properties.
? But price alone is not a sufficient indicator of value, even for a
comparable that is identical to the subject property.
? The appraiser must also gather data on the conditions of the
sale. Of particular importance are the date of the comparables
sale, its financing terms, and any special circumstances
associated with the sale.
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? The date of the comparable sale is important because market
values are subject to change.
? Just as the subject property is valued as of a specific date, the
value of a comparable, as indicated by its sales price, is tied to
the date of its sale.
? The sales dates of comparable properties should be within six
months of the effective date of the appraisal
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? Financing terms have a large impact on sales prices of property.
? When favorable financing is available, buyers are more willing,
and more able, to pay higher prices for housing.
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? Conditions of sale that affect value also include special
concessions by the seller, such as agreeing to pay some or all of
the buyers loan costs.
? Any such concessions that are not typical of the local market
must be accounted for by the appraiser.
? The appraiser must also identify any unusual circumstances that
may have applied to the comparable sale.
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? COST DATA, is used in the cost approach to value.
? It is used to determine the replacement or reproduction cost of
the subject property.
? Building cost estimates can be highly complex and require
considerable skill and experience to prepare.
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Data collected from costing manuals and services and local
building contractors indicates that typical residential building costs
run $60 per square foot for homes that are comparable in features
to the subject property. If the subject property is a 2,500 square foot
residence, its cost would be estimated as:
2,500 sq.ft. x $60 sq.ft = $150,000.
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? If the property subject to an appraisal is used for income
production, data must be collected for the income approach to
value.
? Income and expense data can be obtained from owners,
brokers, and property managers.
? This data is collected for both the subject property and for
comparable income properties.
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? Important income and expense data include:
1.
monthly or annual rental rates;
2.
the terms of rental agreements;
3.
vacancy and bad debt rates;
4.
operating costs for salaries, utilities, repairs, maintenance and management
and professional fees;
5.
real estate taxes and insurance costs;
6.
annual replacement reserve costs for items such as roofing and mechanical
systems;
7.
depreciation rates;
8.
the mortgage interest rate; and
9.
equity investment rates of return.
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Part VII.
Total for Mobile® App for
Appraisers
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Educating Generations, Building Communities
? Appraisers can download free apps to greatly reduce the time,
effort, and repetition previously required for manual data entry
? Total for Mobile® is an example of such an app
? Time-saving benefits of appraisal apps include:
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Educating Generations, Building Communities
I. Understanding Data
II. Regional and Community Data
III. Neighborhood Data
IV. Site Data
V. Building Data
VI. Specific Market Data
VII. Total for Mobile® App for Appraisers
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Educating Generations, Building Communities
? Read Next Chapter
? Write Reflection Summary
? Study for Quiz
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Educating Generations, Building Communities
? Schedule 1 hour of study every day
? Plan to be early!
? Always be ready
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Only what you put into it!
? Take Notes
? Stay Engaged
? Think of How to Apply
? Ask Questions
? Participate / Share
? Do Activities
? Be Grateful
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? Educate yourself by attending class
? Assignments & Activities
? Read every day
? Never stop learning!
The more you LEARN the more you EARN.
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Student Learning Objectives met
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Victor Valley College
Victor Valley College
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Nothing will work unless
you do.
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Site Valuation
Educating Generations, Building Communities
I.
Highest and Best Use
II.
Vacant and Improved Land
III. Methods of Site Valuation
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5
Part I.
Highest and Best Use
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Educating Generations, Building Communities
? The orderly process of appraisal is totally dependant on an
accurate analysis of highest and best use.
? We have seen that real estate is not simply the land and its
improvements, but the rights that go with the land, such as the
right to use, subdivide, or transfer the land.
? In real estate appraisal, the market value of property always
depends on its highest and best use.
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? The HIGHEST AND BEST USE of property is the use that is
reasonable and probable and that results in the highest present
value, as of the date of the appraisal.
? Highest and best use assumes that the market will view the value
of the property in light of all its possible uses.
? If there is more than one possible use for the property, its value
will be determined by the most productive (profitable) use.
? Highest and best use is also defined as the use that gives the
greatest value attributable to the land.
BRE – 140 Real Estate Appraisal
7/21/2020
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Educating Generations, Building Communities
BRE – 140 Real Estate Appraisal
7/21/2020
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Educating Generations, Building Communities
? Assume a site could be utilized as a mini-warehouse or a
parking garage. Assume that the construction costs to build the
warehouse would be $1,000,000, but when completed, the site
land and improvements would have a value of $1,500,000. For
use as a mini-warehouse the site would therefore have a value
of $ 500,000:
?
Value of mini-warehouse $1,500,000.00
?
Cost to construct -$1,000,000.00
?
Value attributable to land $ 500,000.00
BRE – 140 Real Estate Appraisal
7/21/2020
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Educating Generations, Building Communities
? Assume a parking structure on the same site would cost
$2,000,000 to construct but the value of the structure and land
would be $3,000,000. In this case, the parking structure would be
a higher and better use than the mini-warehouse since the land
value for this use would be $1,000,000:
?
Value of parking structure $3,000,000.00
?
Cost to construct -$2,000,000.00
?
Value attributable to land $1,000,000.00
BRE – 140 Real Estate Appraisal
7/21/2020
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Educating Generations, Building Communities
? Appraisers must identify the highest and best use of a property
for three reasons:
1. Highest and best use influences the value of the property, since
the market value depends on the most profitable use.
2. Highest and best use guides the appraiser in the separate
valuation of land and improvements.
3. Highest and best use helps identify comparable properties
