In which field of the sales comparison grid would you find an indication of an arm’s length sale?

A condition, directly related to a specific assignment, which is contrary to what is known by the appraiser to exist on the effective date of the assignment results, but is used for the purpose of analysis.

The type and extent of research and analyses in an appraisal or appraisal review assignment.

An economic unit that can or does express demand for a product. Representative demand units include the population of potential buyers or renters in a specific market area who are capable of purchasing or leasing the subject, and the population of potential shoppers in a specific trade area who are likely to make purchases at a particular retail facility.

Competitive Supply Analysis

A market study that identifies the supply of properties within a defined geographic area competitive with the subject and rates these properties against the subject based on their locational and amenity attributes. Supply analysis is used to define the primary trade area for the subject and to determine the amount of competitive space in this area.

A process that investigates how a particular piece of property will be absorbed, sold, or leased under current or anticipated market conditions; includes a market study or analysis of the general class of property being studied.
2. A microeconomic study that examines the marketability of a given property or class of properties, usually focusing on the market segment(s) in which the property is likely to generate demand. Marketability studies are useful in determining a specific highest and best use, testing development proposals, and projecting an appropriate tenant mix.

The reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value. The four criteria the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum productivity.

Highest and Best Use of Land or a Site as Though Vacant

Among all reasonable, alternative uses, the use that yields the highest present land value, after payments are made for labor, capital, and coordination. The use of a property based on the assumption that the parcel of land is vacant or can be made vacant by demolishing any improvements.

Highest and Best Use of the Property as Improved

The use that should be made of a property as it exists. An existing improvement should be renovated or retained as is so long as it continues to contribute to the total market value of the property, or until the return from a new improvement would more than offset the cost of demolishing the existing building and constructing a new one.

The appraisal principle that states that when several similar or commensurate commodities, goods, or services are available, the one with the lowest price will attract the greatest demand and widest distribution. This is the primary principle upon which the cost and sales comparison approaches are based.

The perception that value is created by the expectation of benefits to be derived in the future.

The concept that the value of a particular component is measured in terms of its contribution to the value of the whole property, or as the amount that its absence would detract from the value of the whole.

In economic theory, the principle that states that the price of a commodity, good, or service varies directly, but not necessarily proportionately, with demand, and inversely, but not necessarily proportionately, with supply. In a real estate appraisal context, the principle of supply and demand states that the price of real property varies directly, but not necessarily proportionately, with demand, and inversely, but not necessarily proportionately, with supply.

The result of the cause and effect relationship among the forces that influence real property value.

The principle that real property value is created and sustained when contrasting, opposing, or interacting elements are in a state of equilibrium.

To know who or who will not be attracted to a property, it’s necessary to know not only the property’s location itself but also its particular characteristics.

It is possible to appraise a life estate, a leased fee, or fee simple less mineral rights. In some residential markets, however, the question of what rights are or are not included is the most significant question to ask a client upon accepting an assignment: If the current owner does not own the mineral rights—or other key rights—how will that affect the value of his interest?

An assumption, directly related to a specific assignment, as of the effective date of the assignment results, which, if found to be false, could alter the appraiser’s opinions or conclusions. Comment: presume as fact otherwise uncertain information about physical, legal, or economic characteristics of the subject property; or about conditions external to the property, such as market conditions or trends; or about the integrity of data used in an analysis.

Sales Comparison Approach

A set of procedures in which a value indication is derived by comparing the property being appraised to similar properties that have been sold recently, then applying appropriate units of comparison and making adjustments to the sale prices of the comparables based on the elements of comparison. The sales comparison approach may be used to value improved properties, vacant land, or land being considered as though vacant; it is the most common and preferred method of land valuation when an adequate supply of comparable sales are available.

income capitalization approach

most applicable to residential properties for which an active rental market exists and where buyers take income potential into account. The income capitalization approach assumes that the value of a rental property is directly related to its ability to produce income.

applied to gross monthly rent and is usually the appropriate capitalization technique for valuing one-to-four unit residential properties. It may be the most important valuation tool available for small residential income properties (24 units, for example) where buyers are also investors, In markets where the typical property is owner-occupied, this approach is less relevant and seldom used..

sales comparison approach

approach uses comparable sales and listings of what buyers have done in the past to predict what buyers will do in the future.

to convert future periodic income or reversion (resale) to a lump sum value (market value) as of the effective date of valuation.

The components into which a property may be divided for purposes of comparison, e.g., price per square foot, front foot, cubic foot, room, bed, seat, apartment unit.

Gross Price (entire property, VO)

In single-unit residential properties, this method is the most common way to develop an opinion of market value and may be adequate when data are plentiful and comparability good.

The most common unit of market-value comparison for single-unit properties is not a price per square foot but the price overall.

price per square foot of GLA

can be used for single or multi-unit properties. If sales data are similar in most other respects, this analysis will automatically adjust for differences in structure size but won’t always yield consistent answers.

Analysis on a total property basis can also be used to estimate
This approach requires drawing conclusions from a visual review of the data.

is especially productive when subject involves two or more units. Apartment buyers in many markets will think in "dollars per unit," but a buyer for a two-unit property typically will not

price-per-room comparison

commonly used to value properties of four or more units and is not recommended for properties with fewer than four units. The most significant pitfall of this analysis is if the data source (a broker or assessor, for example) counts as a room a space that an appraiser would typically not count as a room—for instance, a small bathroom or foyer.

The characteristics or attributes of properties and transactions that cause the prices of real estate to vary.

If the Comparable sale is Better, Subtract the adjustment.

If the Comparable sale is Inferior, Add the adjustment

Real Property Rights Conveyed

An element of comparison in the sales comparison approach; comparable properties can be adjusted for differences in the real property rights involved in a transaction.

An element of comparison in the sales comparison approach; comparable properties can be adjusted for differences in the financing terms of a transaction. Also called cash equivalency adjustment.

An element of comparison in the sales comparison approach; comparable properties can be adjusted for differences in the motivations of either the buyer or a seller in a transaction, e.g., when the comparable transaction is not an arm's-length sale.

Expenditures Made Immediately After Purchase

An element of comparison in the sales comparison approach; comparable properties can be adjusted for any additional, atypical investment (e.g., curing deferred maintenance) required to make a property salable.

An element of comparison in the sales comparison approach; comparable properties can be adjusted for differences in the points in the real estate cycle at which the transactions occur. Also called a time adjustment because the differences in dates of sale are often compared.

1. The time-distance relationships, or linkages, between a property or neighborhood and all other possible origins and destinations of people going to or coming from the property or neighborhood. 2. An element of comparison in the sales comparison approach.

An element of comparison in the sales comparison approach; comparable properties can be adjusted for differences in such characteristics as size, age (at the time of the transaction), condition, functional utility, and quality of the improvements.

An element of comparison in the sales comparison approach; comparable properties can be adjusted for differences in the attributes that affect a property's income, such as operating expenses, quality of management, tenant mix, rent concessions, lease terms, lease expiration dates, renewal options, and lease options such as recovery clauses.

generally refers to income and expense factors that affect property value.

An element of comparison in the sales comparison approach; comparable properties can be adjusted for differences in highest and best uses or zoning. Adjustments for use or zoning are difficult to support and are generally used only when other sufficiently comparable transactions are lacking.

can be personal property or business enterprise value. Personal property items included in a sale or appraisal are most commonly found in one-to-four-unit residential properties

A market data grid used in the sales comparison approach and other approaches to facilitate adjustment of differences in elements of comparison.

Suggested Order of Adjustments

1. Property rights conveyed 2. Financing terms 3. Conditions of sale 4. Adjustment of expenditures made immediately after purchase 5. Market conditions 6. Location 7. Physical characteristics 8. Economic characteristics 9. Use 10. Non-realty components

adjustment technique preferred by most appraisers

Gross rent multiplier (GRM)

commonly used, provided the difference in rental rate attributable to a property characteristic can be isolated and that it can be capitalized (converted to a lump sum)

income capitalization approach

can be used to extract an adjustment rate with a variety of tools

Cost and Depreciation Analysis

This method is based on the logic that an item's contributory value will equal that item's cost less depreciation from all causes. That’s not to say an item or feature has value equal to its cost.

A process in which an appraiser determines a probable range of values for a property by applying qualitative techniques of comparative analysis to a group of comparable sales.

Elements of Comparison That May Require Adjustments in the Sales Comparison Approach

1. Real property rights conveyed 2. Financing terms 3. Conditions of sale 4. Expenditures made immediately after purchase 5. Market conditions 6. Location 7. Site size 8. Site view 9. Design (style) 10. Quality of construction 11. Actual age 12. Building condition 13. Above-grade room count 14. Gross living area (GLA) or gross building area (GBA) 15. Basement and finished rooms below grade 16. Functional utility 17. Heating/cooling system 18. Energy-efficient items 19. Garage/carport 20. Porches/patios/decks

interests are the element most commonly requiring adjustment. In some markets, the subject residence could be built on leased land. The interest (rights) most similar to the building value would be the leasehold. If the land was leased and a residence was built on it, the mortgage interest used with the residential form appraisals is the leasehold.

Sales and Financing Concessions

This element of comparison allows and requires the appraiser to make adjustments for an increase in the sale price of a comparable that can be attributed to the seller providing favorable financing or paying financing costs for the buyer.

adjustment compensates for unusual conditions of sale that would cause a comparable property to sell for a price that does not reflect its market value.

Expenditures Made Immediately After Purchase

This element of comparison compensates for situations in which the buyer invested a large amount of money immediately after the purchase.

Market Conditions (Date of Sale/Time)

Based on trends in price over time, this adjustment compensates for the difference between market values— positive or negative—on the date of sale of the comparable and market values as of the date of the appraisal.

The popularity of the __________ drives the demand side of the market. That drives prices up or down and affects maintenance levels, home-ownership rates, and, eventually, the appearance of the entire neighborhood

In many markets, _______ is important to buyers of one-to-four-unit residential properties and will usually be listed as the actual size, not as "equal, inferior, or superior."

• On-site parking
  
• • Availability of land for pools and tennis courts
  
• • Excess and surplus land.
  

single-unit residential markets can, of course, be an important factor. In some markets, real curb appeal of single-unit homes is one of the most important attributes. In other markets, the height will be a significant attribute: the taller the home, the more impressive it is. A two-story home with a steep roof pitch seems much larger than a one-story or two-story home with a lower roof pitch.

because determination of quality is so subjective, this adjustment is often scrutinized and additional support may be warranted. Quality of

The age and the condition of the improvements are not the same thing and should not be confused or combined. In a matched pair analysis, in most markets, for instance, a newer home will sell for more than an older one.

Condition adjustments are common in older properties, especially properties that have been rented for a while or have been foreclosed upon. Although it’sdifficult to accept large condition adjustments when comparing properties with newer improvements, such adjustments should be at least discussed and explained.

Gross Living Area (GLA) or Gross Building Area (GBA) Page

The size of a residence can be the largest single-line adjustment. This adjustment allows the use of home sales that are not exactly the same size as the subject for comparisons. A common problem is that if the GLA of the comparables differs greatly from that of the subject, these sales may be attractive to a different market segment and not indicative of the subject’s value.

Most appraisers use this line for functional inadequacies such as unmarketable floor plan problems, poor decorating designs, or lack of a required item like a second bathroom. The key problem is to avoid double counting. That can occur if an adjustment for functional limitations is made on more than one line on the same adjustment grid.

This line includes superior or inferior energy-efficient designs that return more market value to the owner. While there are many energy-efficient items that may be included in a residence, some are so insignificant that they do not warrant adjustments, and others are significant but don’t matter to the market. This item will have the same logic for adjustment as listed for the HVAC system

Other significant factors might require adjustment—for example, swimming pools, large barns, country club memberships, personal property, or others.

Relative Comparative Analysis

general term used to describe the comparison of a subject to recently sold properties with similar highest and best use with or without quantitative adjustments. It compares positive and negative attributes instead of plus and minus dollars and percentages.

analysis covers three general techniques and many variations. The three general techniques are: • Relative comparison analysis • Ranking analysis • Personal interviews

technique in which the appraiser researches sales, listings, and other data, puts the data in an array, and then places the subject within the array. This process provides a value opinion or a starting point for a final value opinion.

provide little direct support for a value conclusion, but they can provide a good indication of what a property is worth or not worth.

This data provides the date of sale from which to build another indication of value. It’s the date of "the meeting of the minds" and is used for calculating the appreciation or depreciation rates. The pending sale price is available from the purchase agreement. In rapidly changing markets, the data from the negotiations can be significant.

Gross sale price/date of sale

This price is what a buyer agreed to pay and the price at which the seller agreed to sell as of the date of sale (pending). Sometimes it can reveal renegotiation after a home inspection or other contingencies were removed. Other important factors, of course, should also be considered.

To assist prospective buyers who don’t have down payments, real estate agents, builders, or other sellers will structure a deal to allow the seller to pay some or all of the down payment or the closing costs for the buyer. The seller almost always increases the price to compensate for the extra cost, which should be accounted for in an analysis of the subject's history.

Arm's-length transaction**

A transaction between unaffiliated parties; a transaction carried out under free market conditions with each party acting in its own best interests regardless of any relationship with other parties to the transaction

A price agreed [to] between strangers; a price determined by a willing buyer and a willing seller where neither is under pressure to buy or sell.

An element of comparison in the sales comparison approach; comparable properties can be adjusted for differences in the motivations of either the buyer or a seller in a transaction--for example, when the comparable transaction is not an arm's-length sale.

Improvements at time of sale

Two lines in this analysis of the subject’s prior market history that deal with changes in property condition. The first allows the cost of initial improvements to be included in the price, which is then also adjusted for appreciation or depreciation over the ownership period. This line is similar to the line for "improvements made immediately after sale" in the list of related adjustments included in some sales comparison analyses.

Rate of appreciation or depreciation in the market

This line shows the rate of appreciation found in the market and reflects the appraiser’s opinion. It must be a believable amount and consistent with other market data. If the appraiser indicates prices are increasing at 2% per year, market conditions adjustments to comparable sales must then be made at the same rate. This factor can be significant in rapidly changing markets but less so in markets with stable or declining prices.

Adjustment for appreciation or depreciation in the market

This line provides the dollar adjustment based on the percentages listed on the rate of appreciation or depreciation line just discussed. If the appraiser indicates values are increasing by 3% per year, the adjustment is calculated by multiplying the number of months by 0.0025 (monthly rate) by the subtotaled price. If the prior sale of the subject is old, this amount will be large. If the prior sale is recent, this number will be small.

Gross Rent Multiplier (GRM)

The relationship or ratio between the sale price or value of a property and its gross rental income.

Gross rent multiplier analysis

is one technique used by buyers, real estate agents, and appraisers to convert the periodic monthly income a property earns to a lump sum capital amount (value). This calculation is easy in that a property’s sale price is divided by the monthly rental amount to obtain a ratio. This ratio is then applied to the subject's monthly market rent to arrive at a value indication.

is obtained by dividing the cash equivalent sale price of a residential property by the gross monthly market rent for the unfurnished unit(s) at the time of sale.

The last phase of any valuation assignment in which two or more value indications derived from market data are resolved into a final value opinion, which may be either a final range of value or a single point estimate. 2. In the sales comparison approach, reconciliation may involve two levels of analysis: 1) derivation of a value indication from the adjusted prices of two or more comparable sales expressed in the same unit of comparison and 2) derivation of a value indication from the adjusted prices of two or more comparables expressed in different units of comparison.

Economic issues can be significant if the subject is in a market where investors are prevalent.

Divided or undivided rights in real estate that represent less than the whole.

The ownership of real estate itself is also described as the

Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat.

is the common law right of government to impose taxes on real property.

is the right of government to take private property for public use.

is the right of government to regulate the use of land in some areas and is commonly known as zoning. Strictly enforced or not, land-use regulations almost always impact appraisal reports because zoning is fundamental to determining highest and best use.

makes the state the “heir of last resort.” In other words, if no other heirs can be found,
allows the government to take properties not willed to or not given to others by process of law. This right is not absolute, however, and as a practical matter the relatives of individuals who die without wills are still entitled to such property.

are non-possessory interests in real property that convey the right to use, but not own, a portion of real estate from the fee owner to the easement owner.

describes the public's right to pass through another party's land, usually for highway or railroad purposes.
are similar to easements in that they allow the public to use the property, though usually for transportation reasons.

A right to a definite or conditional flow or quantity of water, usually for use at stated times and in stated quantities, e.g., for irrigation or for hydroelectric power development.
may be a right acquired by prescription, e.g., arising from the open, notorious, and undisputed use of water for the statutory term of years; a right acquired by appropriation, e.g., a grant from an agency of government with the right to distribute the unappropriated surplus waters of the state; or a riparian right under the common law doctrine of riparian ownership of waters that wash land.

Riparian rights and littoral rights

described as the rights of owners of land that are adjacent to or that contain bodies of water.

The incidental right of the owners of land bordering a lake or stream to the use and enjoyment of the water that flows across their land or is contiguous to it; entitles the user to reasonable use that does not materially diminish the quality or quantity of the water for other owners. The owners' rights are equal, regardless of their location along the stream or the time when each property was purchased.

The right of an owner of land with a contiguous shoreline to use and enjoy the shore without a change in its position created by artificial interference; as distinguished from riparian rights and water rights.

represent the rights of the lessor (landlord) after contractually transferring the rights of possession. They can be affected by lease rates, terms, and other conditions stipulated in the lease, include a first right of refusal clause, an option to buy, or options to extend the lease beyond the existing term.

What is indicated value by sales comparison approach?

Which adjustment should be made first in the sales comparison grid?

For Which situation would the sales comparison approach be best?

What are the two types of adjustments An appraiser can make in the sales comparison approach?