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This document contains lecture slides on real estate analysis and appraisal. It discusses concepts like highest and best use, the three approaches to value (sales comparison, cost, and income), and the steps of the appraisal process including defining the problem, collecting data, analyzing the market, and reconciling values. It provides examples of comparable sales analyses for a case property, calculating indicated values under each approach and reconciling to a final estimate of market value.
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- 1. MBA 590 RealEstate Analysis ! College of Business Alfaisal UNIVERSITY
- 2. Home Ownership Multipleof Annual Income Country Index World Bank 3 U.S. 3 New York 6.1 London 6.5 Hong Kong 11.4 Saudi Arabia - Public 14 Saudi Arabia - Private 29 From: Abdullah Al Shehri Source: 7th Annual Demographia International Housing Affordability Index
- 3. Chapter 6 MarketResearch
- 4. Market Research effectivereal estate market research is often a matter of excluding the irrelevant.
- 5. Market Research generalto specific zoom in specific to general zoom out
- 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. GIS Graphic InformationSystem Data Maps
- 8. Chapter 7 SalesApproach and Cost Approach
- 9. The 8-step AppraisalProcess Identify the Problem Determine the Scope of Work Collect Data and Describe Property Perform Data Analysis Determine Land Value Apply Approaches to Estimate Market Value Reconcile Indicated Values from the Approaches Report Final Value Estimate
- 10. Identify Problem Identifyclient 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. Collect Data andDescribe • 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. 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. Highest and BestUse (1) legally permissible, (2) physically possible, (3) financially feasible, (4) maximally productive
- 14. Highest and BestUse Legally Permissible Physically Possible Financially Feasible Max
- 15. Apply Three Approachs Sales Approach Cost Approach Income Approach
- 16. Market Value themost 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. Market Value Implicitin 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. Market Value -1 buyer and seller are typically motivated. ! !
- 19. Market Value -2 both parties are well informed or well advised, and acting in what they consider their own best interests. !
- 20. Market Value -3 a reasonable time is allowed for exposure in the open market. !
- 21. Market Value -4 payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto.
- 22. Market Value -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. Investment Value valueto an individual not to the market in general .!
- 24. Sales Approach Whatis the market suggesting the subject property is worth?
- 25. Regression? sample sizeis usually too small
- 26. Comparables inferior add superior deduct
- 27. Location Map FaisalStreet Khalid Street Subject Property 12,000 1 Sale 1 1,000,000 8,000 SM 125.00 PSM Oct 14 Sale 2 800,000 8,000 SM 100.00 PSM Oct 13 3 2 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. Subject Property Sale1 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. Matched Pairs Sameexpect for one factor
- 30. Sale 1 Sale2 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 Date of Sale Subject Property 100 to 125 in 12 months 25% in 12 months around 2% per month 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. Adjustment for Dateof 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. 110 100 95.83 90 80 -4% +15% 0 4000 8000 12000 16000 20000 24000 Slope = 83.33 -100.00 24000 - 8000 -16.67 -0.00104 = 16000 = Price = 108.33 -(0.00104 x size) 95.83 = 108.33 -(0.00104 x 12000) 100 to 96 = 4% down and 83.33 to 96 =15% up
- 33. Subject Property Sale1 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% 1,000,000 ÷ 700,000 = 1.43 Add 43%
- 34. Subject Property Sale1 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. Subject Property Sale1 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. Sales Approach Sizein SM 12,000 Rate Per SM 120 Indication 1,440,000
- 37. Location Map FaisalStreet Khalid Street Subject Property 12,000 1 Sale 1 1,000,000 8,000 SM 125.00 PSM Oct 14 800,000 8,000 SM 100.00 PSM Oct 13 3 2 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. Cost Approach Costto replace Land Value Improvement Value
- 39. Subject Property Land12,000 SM Building 5,000 SM
- 40. Land Value SalesApproach Other Approaches
- 41. Improvement Value CostNew Less: Depreciation
- 42. Accrued Depreciation PhysicalDeterioration Functional Obsolescence External Obsolescence
- 43. Improvement Value EconomicLife Effective Age
- 44. Improvement Value EconomicLife = 40 years Effective Age = 10 years Age ÷ Life = Depreciation Age ÷ Life = 25% Remaining Economic Life 30 years
- 45. Improvement Value CostNew PSM = 2,000 Less Depreciation 25% Effective Cost PSM = 1,500
- 46. Cost Approach SizeEffective Rate Indication % of Total Land 12,000 120 1,440,000 16% Building 5,000 1500 7,500,000 84% Indication 8,940,000 100%