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374 7

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Ch 7

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374 7

  1. 1. MGT 374 Real Estate Analysis College of Business AlfaisalUNIVERSITY
  2. 2. Country Index World Bank 3 U.S. 3 NewYork 6.1 London 6.5 Hong Kong 11.4 Saudi Arabia - Public 14 Saudi Arabia - Private 29 Home Ownership Multiple of Annual Income From:Abdullah Al Shehri Source: 7th Annual Demographia International Housing Affordability Index
  3. 3. Chapter 6 Market Research
  4. 4. Market Research effective real estate market research is often a matter of excluding the irrelevant.
  5. 5. Market Research general to specific zoom in specific to general zoom out
  6. 6. Write a story What is the property? Who are the users? Where are the users? What do they care about? Who are the competitors?
  7. 7. GIS Graphic Information System Data Maps
  8. 8. Chapter 7 Sales Approach and Cost Approach
  9. 9. The 8-step Appraisal Process Identify the Problem Determine the Scope of Work Collect Data and Describe Property Perform Data Analysis Determine LandValue Apply Approaches to Estimate MarketValue Reconcile IndicatedValues from the Approaches Report FinalValue Estimate
  10. 10. Identify Problem Identify client and intended users of appraisal • Identify the intended use of the appraisal • Identify the purpose of the assignment (type of value) • Identify the effective date of the valuation • Identify the relevant characteristics of the property • Identify any important assumptions or conditions of the assignment
  11. 11. Collect Data and Describe • Market area data General characteristics of region, city, and neighborhood • Subject property data Site, building, and locational characteristics • Comparable property data Market information on comparable properties
  12. 12. Perform Data Analysis Market analysis Demand, supply, and marketability studies • Highest and best use analysis Highest and best use as though site is vacant Highest and best use as currently improved
  13. 13. Highest and Best Use (1) legally permissible, (2) physically possible, (3) financially feasible, (4) maximally productive
  14. 14. Legally Permissible Physically Possible Financially Feasible Max Highest and Best Use
  15. 15. Apply Three Approachs Sales Approach Cost Approach Income Approach
  16. 16. MarketValue the most probable price a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus.
  17. 17. MarketValue Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:
  18. 18. MarketValue -1 buyer and seller are typically motivated.
  19. 19. MarketValue - 2 both parties are well informed or well advised, and acting in what they consider their own best interests.
  20. 20. MarketValue - 3 a reasonable time is allowed for exposure in the open market.
  21. 21. MarketValue - 4 payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto.
  22. 22. MarketValue - 5 the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale..
  23. 23. InvestmentValue value to an individual not to the market in general.
  24. 24. Sales Approach What is the market suggesting the subject property is worth?
  25. 25. Regression? sample size is usually too small
  26. 26. Comparables inferior add superior deduct
  27. 27. Location Map Faisal Street KhalidStreet Subject Property 12,000 1 Sale 1 1,000,000 8,000 SM 125.00 PSM Oct 14 2 Sale 2 800,000 8,000 SM 100.00 PSM Oct 13 3 Sale 3 2,000,000 24,000 SM 83.33 PSM Oct 13 4 700,000 8,000 SM 87.50 PSM Oct 14 5 800,000 12,000 SM 66.67 PSM Oct 13
  28. 28. Subject Property Sale 1 Sale 2 Sale 3 Sale 4 Sale 5 Price in SAR 1,000,000 800,000 2,000,000 700,000 800,000 Size in SM 12,000 8,000 8,000 24,000 8,000 12,000 Price Per SM 125.00 100.00 83.33 87.50 66.67 Date of Sale Oct-14 Oct-14 Oct-13 Oct-13 Oct-14 Oct-13 Location Faisal Street Faisal Street Faisal Street Faisal Street Khalid Street Khalid Street Range 66.67 to 125.00
  29. 29. Matched Pairs Same expect for one factor
  30. 30. Date of Sale 100 to 125 in 12 months 25% in 12 months around 2% per month Subject Property Sale 1 Sale 2 Sale 3 Sale 4 Sale 5 Price in SAR 1,000,000 800,000 2,000,000 700,000 800,000 Size in SM 12,000 8,000 8,000 24,000 8,000 12,000 Price Per SM 125.00 100.00 83.33 87.50 66.67 Date of Sale Oct-14 Oct-14 Oct-13 Oct-13 Oct-14 Oct-13 Location Faisal Street Faisal Street Faisal Street Faisal Street Khalid Street Khalid Street Adjustment for Date of Sale 0% 25% 25% 0% 25% Adjusted Indication 125.00 125.00 104.16 87.50 83.34
  31. 31. Adjustment for Date of Sale 0% 25% 25% 0% 25% Adjusted Indication 125.00 125.00 104.16 87.50 83.34 Subject Property Sale 1 Sale 2 Sale 3 Sale 4 Sale 5 Price in SAR 1,000,000 800,000 2,000,000 700,000 800,000 Size in SM 12,000 8,000 8,000 24,000 8,000 12,000 Price Per SM 125.00 100.00 83.33 87.50 66.67 Date of Sale Oct-14 Oct-14 Oct-13 Oct-13 Oct-14 Oct-13 Location Faisal Street Faisal Street Faisal Street Faisal Street Khalid Street Khalid Street Adjustment for Size -4% -4% +15% -4% 0%
  32. 32. 80 90 100 110 0 4000 8000 12000 16000 20000 24000 Slope = 83.33 -100.00 24000 - 8000 -0.00104-16.67 16000 = = Price = 108.33 -(0.00104 x size) 95.83 = 108.33 -(0.00104 x 12000) 95.83 100 to 96 = 4% down and 83.33 to 96 =15% up -4% +15%
  33. 33. Adjustment for Date of Sale 0% 25% 25% 0% 25% Adjusted Indication 125.00 125.00 104.16 87.50 83.34 Adjustment for Size -4% -4% +15% -4% 0% Subject Property Sale 1 Sale 2 Sale 3 Sale 4 Sale 5 Price in SAR 1,000,000 800,000 2,000,000 700,000 800,000 Size in SM 12,000 8,000 8,000 24,000 8,000 12,000 Price Per SM 125.00 100.00 83.33 87.50 66.67 Date of Sale Oct-14 Oct-14 Oct-13 Oct-13 Oct-14 Oct-13 Location Faisal Street Faisal Street Faisal Street Faisal Street Khalid Street Khalid Street 1,000,000 ÷ 700,000 = 1.43 Add 43%
  34. 34. Subject Property Sale 1 Sale 2 Sale 3 Sale 4 Sale 5 Price in SAR 1,000,000 800,000 2,000,000 700,000 800,000 Size in SM 12,000 8,000 8,000 24,000 8,000 12,000 Price Per SM 125.00 100.00 83.33 87.50 66.67 Date of Sale Oct-14 Oct-14 Oct-13 Oct-13 Oct-14 Oct-13 Location Faisal Street Faisal Street Faisal Street Faisal Street Khalid Street Khalid Street Adjustment for Date of Sale 0% 25% 25% 0% 25% Adjusted Indication 125.00 125.00 104.16 87.50 83.34 Adjustment for Size -4% -4% +15% -4% 0% Adjustment for Location 0% 0% 0% +43% +43%
  35. 35. Subject Property Sale 1 Sale 2 Sale 3 Sale 4 Sale 5 Price Per SM 125.00 100.00 83.33 87.50 66.67 Adjustment for Date of Sale 0% 25% 25% 0% 25% Adjusted Indication 125.00 125.00 104.16 87.50 83.34 Adjustment for Size -4% -4% +15% -4% 0% Adjustment for Location 0% 0% 0% +43% +43% Net Adjustments -4% -4% 15% 39% 43% Indication 120.00 120.00 119.79 121.63 119.17 Range 119.17 to 121.63 Indication 120
  36. 36. Size in SM 12,000 Rate Per SM 120 Indication 1,440,000 Sales Approach
  37. 37. Location Map Faisal Street KhalidStreet Subject Property 12,000 1 Sale 1 1,000,000 8,000 SM 125.00 PSM Oct 14 2 800,000 8,000 SM 100.00 PSM Oct 13 3 2,000,000 24,000 SM 83.33 PSM Oct 13 4 700,000 8,000 SM 87.50 PSM Oct 14 5 800,000 12,000 SM 66.67 PSM Oct 13 Indication 120 PSM 1,440,000
  38. 38. Cost Approach Cost to replace LandValue ImprovementValue
  39. 39. Faisal Awamar Abdar Tower Building. Location: Olaya St. intersect with Al-ThumamaValley St. Olaya District.
  40. 40. Faisal Awamar Abdar Tower Building. Location: Olaya St. intersect with Al-ThumamaValley St. Olaya District.
  41. 41. Faisal Awamar Abdar Tower Building. 8 stories 2 under ground floors B2, B1, G, 1, 2, 3, 4, 5 floors.
  42. 42. Faisal Awamar Abdar Tower Building Land Size:1,850 Building Size: 6,230
  43. 43. Subject Property Land 1,850 SM Building 6,230 SM
  44. 44. LandValue Sales Approach Other Approaches
  45. 45. ImprovementValue Cost New Less: Depreciation
  46. 46. Accrued Depreciation Physical Deterioration Functional Obsolescence External Obsolescence
  47. 47. Physical Deterioration wearing out over time
  48. 48. Functional Obsolescence design flaw
  49. 49. External Obsolescence a change in the location characteristics
  50. 50. ImprovementValue Economic Life Effective Age
  51. 51. ImprovementValue Economic Life = 40 years Effective Age = 10 years Age ÷ Life = Depreciation Age ÷ Life = 25% Remaining Economic Life 30 years
  52. 52. ImprovementValue Cost New PSM = 3,000 Less Depreciation 25% Effective Cost PSM = 2,250
  53. 53. Size Effective Rate Indication % of Total Land 1,850 3,000 5,550,000 28% Building 6,230 2,250 14,017,500 72% Indication 19,567,500 100% Cost Approach

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