Student handout module 3 - pricing case study - amended

LREC 2015 Mandatory CE
Course Developer: Cheryl B. Bella, MAI, AI-GRS 1
MODULE 3
CMA and BPO – Pricing Example
58Course Developer: Cheryl B. Bella, MAI, AI-GRS
n What is a CMA?
n When is it used?
n Who is the Preparer?
n Who is the Client?
n What is the Conclusion?
59
CMA
Course Developer: Cheryl B. Bella, MAI, AI-GRS
What is a CMA?
Comparative Market Analysis
When is it used?
Typically when listing a property
Who is the Preparer?
Real Estate Agent/licensee
Who is the Client?
Seller or Buyer you are representing
What is the Conclusion?
Probable List Price or Probable Price Range

n What is a BPO?
n When is it used?
n Who is the Preparer?
n Who is the Client?
n What is the Conclusion?
62
BPO
What is a BPO?
Broker’s Price Opinion
When is it used?
Upon request by a third party
Who is the Preparer?
Real Estate Agent/Licensees
Who is the Client?
Third parties such as banks/mortgage
companies, attorneys, etc.
What is the conclusion?
Probable Price or Probable Price Range

Appraisal
= or ≠
BPO / CMA
Property Price vs. Property Value
“not necessarily equal”
n Price - amount a
purchaser agrees to pay
and seller agrees to
accept for a property at a
point in time
n Real Estate Agents talk
price
n Subjective
n Value - monetary worth
of property to buyer and
seller at a point in time
n Appraisers talk value
n Objective

Financial Institutions require:
Market Value Conclusions for
Appraisals and Evaluations
n Buyer and Seller are typically motivated;
n Both parties are well informed or well advised, and acting
in what they consider their own best interests;
n A reasonable time is allowed for exposure in the open
market;
n Payment is made in terms of cash in US dollars or in terms
of financial arrangements comparable thereto; and
n 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.
When do banks typically order a
BPO?
n Pre-foreclosure
¨BPOs are ordered to help bank decide
whether to foreclose or not.
n Post-foreclosure
¨BPOs are ordered to help determine list price
based on property and market conditions.
Note: In Louisiana BPO fee should be sent
to the brokerage firm, not the licensee
Pricing Case Study
n Let’s use the comparative unit knowledge
to “price” a subject property.
n In “residential” BPO, CMA and Appraisal
Analysis, adjustments are done in gross
numbers in the forms. Behind the scenes
unit value calculations are used to derive
the adjustments and support the
reasonableness of same.

PRICING CASE STUDY
n Turn to “Pricing Case Study” section of
your handout
n Need calculator for simple math!
Pricing Case Study
We’ve found three comparable closed sales
– comparable means,
Recent Sales
Bracket Subject in Size (L.A.)
Competitive Market Area
Similar in Age
Similar in Quality and Condition

73
ITEM SUBJECT
Property Address
123 Subject
Street, Best City
Proximity to Subject
Date of Sale n/a
Days on Market
Sale Price n/a
Living Area 2,498 2,432 SF 2,558 SF 2,322 SF
Price /SF of Living
Area $126.34 SP/SF $133.41 SP/SF $129.20 SP/SF
Price Adjustments
Concessions
Property Rights
Location Good Subdivision
Site Typical Interior
View Other houses
Design (Style) Ranch
Quality of Construction Brick w / slab
Age 10-15 years
Quality/Condition Good
Total/BR/Ba 9Tot / 3BR / 2ba
Living Area 2498
Basement & Finished
Rooms Below Grade n/a
Functional Utility Adequate
Heating/Cooling Central
Energy Efficient Items Ceiling Fans
Garage/Carport 2 car garage
Porch/patio/deck Porch
Fence/Pool Fence
Other n/a
Fence Fence/Pool Fence
n/a n/a n/a
2 car grg 2 car grg 2 car grg
Porch Porch Porch
Central Central Central
Ceiling Fans Ceiling Fans Ceiling Fans
none none none
Adequate Adequate Adequate
9Tot / 3BR / 2 ba 9Tot / 3BR / 2ba 9Tot / 3BR/ 2.5ba
2432 2558 2322
10-15 yrs. 10-15 yrs. 10-15 yrs.
Good Good Good
Ranch Ranch Ranch
Brick w / slab Brick w / slab Brick w / slab
Typical Interior Typical Interior Typical Interior
Other houses Other houses Other houses
Fee Fee Fee
Good S/D Good S/D Best S/D
Description Description Description
seller paid $2,000 to buyer
for repairs none none
35 days 46 days 10 days
$307,250 $341,250 $300,000
w ithin one mile w ithin one mile w ithin one mile
1 month ago 6 months ago 3 months ago
COMPETITIVE CLOSED SALES
SALE#1 SALE#2 SALE#3
123 1ST STREET, BEST CITY 123 2ND STREET, BEST CITY 123 3RD STREET, BEST CITY
1st step - Concessions:
n Must always be reviewed. The goal is to
get to the price paid for the real estate in
“as is” condition “as of” the date of sale.
n Concession Examples:
¨ Money paid to buyer for repairs outside of recorded
price must be deducted
¨ Other items included in sales price beyond the real
estate must be deducted if they impact the real estate
price (e.g. paid more because movables included. If
inclusion did not impact price, do not deduct)
75
ITEM SUBJECT
Property Address
123 Subject
Street, Best City
Date of Sale n/a
Days on Market
Sale Price n/a
Price/SF of Living Area $126.34 SP/SF $133.41 SP/SF $131.35 SP/SF
Sale Price n/a
Price Adjustments Description Adj (+/-) Description Adj (+/-) Description Adj (+/-)
Concessions
seller paid
$2,000 to
buyer for
repairs ($2,000) none $0 none $0
Adjusted SP/SF | SP
within one mile w ithin one mile within one mile
6 months ago 3 months ago1 month ago
SALE#1 SALE #2 SALE #3
123 1STSTREET, BEST CITY 123 2ND STREET, BEST CITY 123 3RD STREET, BEST CITY
10 days
$307,250 $341,250 $305,000
$307,250 $341,250 $305,000
35 days 46 days

Apply Concession Adjustment in
sample problem
n First – make the concession adjustment
n Compute the Adjusted Sales Price for
each comparable
n Compute the Adjusted Sales Price/SF for
each comparable
Pause: Complete Step 1
n Class computation time – compute
adjusted sales price of each comparable
after concessions.
78
ITEM SUBJECT
Property Address
123 Subject
Street, Best City
Date of Sale n/a
Days on Market
Sale Price n/a
Price/SFof Living Area $126.34 SP/SF $133.41 SP/SF $131.35 SP/SF
Sale Price n/a
Concessions
seller paid
$2,000 to
buyer for
Property Rights Fee Fee Fee Fee Fee Fee
Adjusted SP/SF | SP $125.51 $305,250.00 $133.41 $341,250.00 $131.35 $305,000.00
$307,250 $341,250 $305,000
123 1STSTREET, BESTCITY 123 2NDSTREET, BESTCITY 123 3RDSTREET, BESTCITY
within one mile within one mile within one mile
SALE#1 SALE#2 SALE #3
$307,250 $341,250 $305,000

Highlight the rows of
Elements of Comparison
that Differ in each
comparable
Pause: Complete Step 2
n Class computation time (highlight
elements!)
80
Hint: Four items differ – highlight those rows!
Elements of Comparison that
differ include:
n Location
n Bath count
n Living Area
n Pool

82
ITEM SUBJECT
Property Address
123 Subject
Street, Best City
View Other houses
Age 10-15 years
Total/BR/Ba 9 Tot/ 3BR / 2ba
Living Area 2498
Basement & Finished
Fence/Pool Fence
Other n/a
123 1ST STREET,
BEST CITY
123 2ND STREET,
BEST CITY
123 3RD STREET,
BEST CITY
Ranch Ranch Ranch
Good Good Good
10-15 yrs. 10-15 yrs. 10-15 yrs.
2432 2558 2322
9 Tot / 3BR /2 ba 9 Tot/ 3BR / 2ba 9 Tot/ 3BR / 2.5ba
none none none
2 car grg
n/a n/a n/a
Porch Porch Porch
2 car grg 2 car grg
GIVEN(adjustments to use in this
case study only):
n Best Location to Good Location = -$5,000
n ½ bath = $500
n Pool Adjustment = $30,000 (extraction
demonstrated in an earlier module)
n Living Area = not given (must extract)
Remember: adjustment are always applied
to the comparable to equate it to the subject.
84
ITEM SUBJECT
Property Address
123 Subject
Street, Best City
Location Good Subdivision $5,000 best to good
Site TypicalInterior
View Other houses
Quality of Construction Brick w/ slab
Age 10-15 years
Total/BR/Ba 9 Tot/ 3BR / 2ba $500 1/2 bath
Living Area 2498
Basement & Finished
Fence/Pool Fence $30,000 pool to nopool
Other n/a
SALE #1 SALE#2 SALE#3
123 1STSTREET,
BEST CITY
123 2ND STREET,
BESTCITY
123 3RD STREET,
BESTCITY
TypicalInterior Typical Interior Typical Interior
Brick w / slab Brick w / slab Brick w/ slab
Ranch Ranch Ranch
Good Good Good
10-15 yrs. 10-15 yrs. 10-15 yrs.
2432 2558 2322
9 Tot / 3BR /2 ba 9 Tot/ 3BR/ 2ba 9 Tot/ 3BR / 2.5ba
none none none
2 car grg
Given: adj.
n/a n/a n/a
Porch Porch Porch
2 car grg 2 car grg

Apply the known adjustments in
your adjustment grid.
Pause – Fill in grid in Step 3
n Class computation time
¨ -$5000 Best to Good location
¨ $500 ½ bath
¨ $30,000 pool
86
ITEM SUBJECT
Adjusted SP/SF | SP $125.51 $305,250.00 $133.41 $341,250.00 $131.35 $305,000.00
Location Good Subdivision Good S/D $0 Good S/D $0 Best S/D ($5,000)
Site Typical Interior Typical Interior $0 Typical Interior $0 Typical Interior $0
View Other houses Other houses $0 Other houses $0 Other houses $0
Design (Style) Ranch Ranch $0 Ranch $0 Ranch $0
Quality of Construction Brick w / slab Brick w / slab $0 Brick w / slab $0 Brick w/ slab $0
Age 10-15 years 10-15 yrs. $0 10-15 yrs. $0 10-15 yrs. $0
Quality/Condition Good Good $0 Good $0 Good $0
Total/BR/Ba 9 Tot / 3BR / 2ba 9T/3BR/2 ba $0 9T/3BR/2ba $0 9T/3BR/2.5ba ($500)
Living Area 2498 2432 ? 2558 ? 2322 ?
Basement & Finished
Rooms Below Grade n/a none $0 none $0 none $0
Functional Utility Adequate Adequate $0 Adequate $0 Adequate $0
Heating/Cooling Central Central $0 Central $0 Central $0
Energy Efficient Items Ceiling Fans Ceiling Fans $0 Ceiling Fans $0 Ceiling Fans $0
Garage/Carport 2 car garage 2 car grg $0 2 car grg $0 2 car grg $0
Porch/patio/deck Porch Porch $0 Porch $0 Porch $0
Fence/Pool Fence Fence $0 Fence/Pool ($30,000) Fence $0
Other n/a n/a $0 n/a $0 n/a $0
SALE#1 SALE #2 SALE #3
Compute your adjusted sales price,
net of Living Area adjustment
Pause – Compute final line in Step 3

Living Area Adjustment
What is the only remaining element of
comparison that differentiates the
comparables from the subject?
Where does the living area
adjustment come from?
Market Extraction
Matched Pairs

Extraction of Living Area (SF)
Adjustment
n Compare the adjusted price of
Comparable 1 and Comparable 2
n We have already adjusted for all major
differences (concessions and pool)
n These two comparables are now equal
except for living area
n We can now extract a living area
adjustment
Compute difference in sales price (Sale 1 – Sale 2)
Compute the difference is Living Area (Sale 1 - Sale 2)
Divide Price Difference by Living Area Difference to
determine SP/SF of LA adjustment
92
STEPS:
Pause – Compute Step 4
n Class computation time – subtract each
row, then divide (SP difference/SF
difference)

Extracted Adjustment: ≈$50/SF
A comparison of
Sale 1 to Sale 3
produces a similar answer:
95
Approximately $50/SF
Let’s now apply the adjustment
to the sales
n Direction of Adjustment:
¨ Sale 1: Comp. is smaller than subject = “+” adj.
¨ Sale 2: Comp. is larger than the subject = “-” adj.
¨ Sale 3: Comp. is smaller than the subject = “+” adj.

n Take the difference in the subject SF and
comparable SF and multiply by $50
n Direction of Adjustment:
¨Sale 1 = (2498-2432)*$50 “+” adjustment
¨Sale 2 = (2498-2558)*$50 “-” adjustment
¨Sale 3 = (2498-2322)*$50 “+” adjustment
Pause – Complete Step 5
n Class computation time – compute each
comparable living area adjustment!
Application of the unit adjustment
$50/SF produces the following:
¨Sale 1 = (2498-2432)*$50 = “+” $3,300
¨Sale 2 = (2498-2558)*$50 = “-” $3,000
¨Sale 3 = (2498-2322)*$50 = “+” $8,800

Let’s complete the adjustment
grid, including the SP/LA
adjustment!
Compute the adjusted Sales
Price of each comparable
Pause – complete Step 6
102
ITEM SUBJECT
Concessions
seller paid
$2,000 to
buyer for
Adjusted SP/SF | SP, after concessions $125.51 $305,250 $133.41 $341,250 $131.35 $305,000
Quality of Construction Brick w / slab Brick w/ slab $0 Brick w / slab $0 Brick w / slab $0
Total/BR/Ba 9Tot/3BR/2ba 9T/3BR/2 ba $0 9Tot/3BR/2ba $0 9T/3BR/2.5ba ($500)
Living Area 2498 2432 $3,300 2558 ($3,000) 2322 $8,800
Basement & Finished Rooms Below Grade n/a none $0 none $0 none $0
Net Total Adjustment 1.08% $3,300 -9.67% ($33,000) 1.08% $3,300
Adjusted Sales Price of Comparables $126.87 $308,550 $120.50 $308,250 $132.77 $308,300
SALE #2 SALE#3SALE #1

Sales Price Conclusion:
n Sale 1 = $308,550
n Sale 2 = $308,250
n Sale 3 = $308,300
Logically – price is around ??????
What’s the next step?
n Measure the subject house correctly!

_________________________________________
MODULE 3
PRICING CASE STUDY
SUBJECT INFORMATION
COMPARABLE SALES:
What is a Comparable?
Recent Sales = < 6 mo.
(similar mkt)
Bracket Subj. Size
Competitive Mkt Area
Similar Quality
Similar Age = 10-15 years
Similar Condition

_________________________________________
CONCESSIONS:
Step 1: Adjust for Concessions:
Concession Examples:
Money paid to buyer for repairs outside of recorded price must be deducted
Other items included in sales price beyond the real estate must be deducted if they impact the real
estate price (e.g. paid more because movables included. If inclusion did not impact price, do not
deduct)
In this example, the seller gave the buyer of Sale 1 $2,000 to replace the damaged carpet, however, the price was
recorded “as if” repaired. COMPUTE ADJUSTED PRICE, NET OF CONCESSIONS:
Step 2: Identify all elements of comparisons in the Comparables that differ from the Subject.
In this example there are four items that differ. Highlight the lines of the elements that differ. Hint: Square Feet
of Living Area is almost always one item. Search for the other three. (Property Address is not an element of
comparison).
ITEM SUBJECT
Property Address
123 Subject
Street, Best City
View Other houses
Age 10-15 years
Total/BR/Ba 9 Tot / 3BR / 2ba
Living Area 2498
Basement & Finished
Fence/Pool Fence
Other n/a
123 1ST STREET, BEST
CITY
123 2ND STREET, BEST
CITY
123 3RD STREET, BEST
CITY
Ranch Ranch Ranch
Good Good Good
10-15 yrs. 10-15 yrs. 10-15 yrs.
2432 2558 2322
9 Tot / 3BR / 2 ba 9 Tot / 3BR / 2ba 9 Tot/ 3BR / 2.5ba
none none none
n/a n/a n/a
Porch Porch Porch
2 car grg 2 car grg 2 car grg

_________________________________________
Step 3: Adjust the Comparables relative to the Subject for the known elements that differ, excluding living area.
This is saved for last. The following adjustments have been previously extracted from the market:
GIVEN:
Best Location to Good Location = -$5,000
½ bath = $500
Pool Adjustment = $30,000 (extraction demonstrated in an earlier module)
Living Area = not given (must extract)
Remember: adjustment are always applied to the comparable to equate it to the subject.
Appropriately fill in each adjustment and compute the Adjusted Sales Price of Comparables, net of “living area”
adjustment.
ITEM SUBJECT
Adjusted SP/SF | SP $125.51 $305,250 $133.41 $341,250 $131.35 $305,000
Location Good Subdivision Good S/D $0 Good S/D $0 Best S/D ?
Site TypicalInterior Typical Interior $0 Typical Interior $0 Typical Interior $0
Quality of Construction Brick w/ slab Brick w/ slab $0 Brickw/ slab $0 Brickw/ slab $0
Total/BR/Ba 9Tot/3BR/2ba 9T/3BR/2 ba $0 9T/3BR/2ba $0 9T/3BR/2.5ba ?
FunctionalUtility Adequate Adequate $0 Adequate $0 Adequate $0
Fence/Pool Fence Fence $0 Fence/Pool ? Fence $0
Adjusted SalesPrice of Comparables,
excluding L.A. adjustment

_________________________________________
Step 4: Extract the Sales Price per Square Foot (SP/SF) of living area adjustment from the comparables. Perform
the extraction by comparing Comparable Sale #1 to Comparable Sale #2 once Step 3 is complete and the adjusted
Sale Price reflects matched pairs:
Compute difference in the adjusted “Sales Price” of sales (Sale 1 – Sale 2)
Compute the difference is “Living Area” SF (Sale 1 - Sale 2)
Divide “Sales Price Difference” by “Living Area Difference” to determine SP/SF of Living Area adjustment
Matched Pairs
SP/SF of LA Adjustment Extraction
Sale 1 Sale 2 Difference
Adjusted SP -
SF -
Divide SP Diff / SF Diff
You can even try the extraction between Sale 1 and Sale 3 and a similar unit value adjustment is supported.
Compute difference in the adjusted “Sales Price” of sales (Sale 1 – Sale 3)
Compute the difference is “Living Area” SF (Sale 1 - Sale 3)
Divide “Sales Price Difference” by “Living Area Difference” to determine SP/SF of Living Area adjustment
Both Support approximately $50/Square Foot of living area as the most reasonable rate to adjust the sale
for variances in square footage of living area.
Step 5: Adjust the Comparables relative to the Subject for the only remaining element that differs = “Living
Area”. Pay attention to the direction of the adjustment.
Smaller comparable to larger subject = positive
Larger comparable to smaller subject = negative
Compute Living Area Adjustment:
Take Comparable Living Area SF from Subject Living Area SF
Sale 1 = (2498-2432)*$50 = “+” ________
Sale 2 = (2498-2558)*$50 = “-” ________
Sale 3 = (2498-2322)*$50 = “+” ________
ITEM SUBJECT
Living Area 2498 2432 ? 2558 ? 2322 ?
SALE #1 SALE #2 SALE #3

_________________________________________
Step 6: Complete the Adjustment Grid and Compute the Adjusted Price for each Comparable Sale.
PROBABLE LIST PRICE: $_______________________
ITEM SUBJECT
Property Address
123 Subject
Street, Best City
Date of Sale n/a
Days on Market
Sale Price n/a
Sale Price n/a
Concessions
seller paid
$2,000 ($2,000) none $0 none $0
Property Rights Fee Fee Fee Fee Fee Fee
Adjusted SP/SF | SP $125.51 $305,250.00 $133.41 $341,250.00 $131.35 $305,000.00
Quality of Construction Brick w/ slab Brick w / slab $0 Brick w / slab $0 Brick w / slab $0
Total/BR/Ba 9Tot/3BR/2ba 9Tot/3BR/2 ba $0 9T/3BR/2ba $0 9T/3BR/2.5ba ($500)
Living Area 2498 2432 ? 2558 ? 2322 ?
Adjusted SalesPrice of Comparables
$307,250 $341,250 $305,000
$307,250 $341,250 $305,000
123 1ST STREET, BEST CITY 123 2ND STREET, BEST CITY 123 3RDSTREET, BEST CITY
within one mile w ithin one mile w ithin one mile

_________________________________________
ANSWER SHEET
ITEM SUBJECT
Property Address
123 Subject
Street, Best City
Date of Sale n/a
Days on Market
Sale Price n/a
Sale Price n/a
Concessions
seller paid
$2,000 to
buyer for
Adjusted SP/SF | SP, after concessions $125.51 $305,250 $133.41 $341,250 $131.35 $305,000
Quality of Construction Brick w / slab Brick w / slab $0 Brick w / slab $0 Brick w / slab $0
Total/BR/Ba 9Tot/3BR/2ba 9T/3BR/2 ba $0 9Tot/3BR/2ba $0 9T/3BR/2.5ba ($500)
Living Area 2498 2432 $3,300 2558 ($3,000) 2322 $8,800
Net Total Adjustment 1.08% $3,300 -9.67% ($33,000) 1.08% $3,300
Adjusted Sales Price of Comparables $126.87 $308,550 $120.50 $308,250 $132.77 $308,300
$307,250 $341,250 $305,000
$307,250 $341,250 $305,000
123 1ST STREET, BEST CITY 123 2ND STREET, BEST CITY 123 3RD STREET, BEST CITY
w ithin one mile w ithin one mile w ithin one mile

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