Appraisal Project Real Estate Valuation
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AppraisalProjectGuideline.pdf
FIN 353 Appraisal Project Whitepaper Guideline
List of files on titanium-Read Before Writing Your Report!!! “Sales Comparison Approach”
“Zillow Comps”
“Appraisal Example FIN 353”
“Appraisal_Example_Full_Solution”
Everyone will prepare an appraisal report on one subject residential real estate property in
FIN 353. The report carries 20 points out of total 100 points of your grade. Everyone must submit
an appraisal report for a residential real estate property (NOT a new construction), covering all the
relevant issues appropriate to the assigned subject property. The report should present a thorough
discussion and analysis of the valuation for the assigned subject project based on sales comparison
approach (Please refer to the ppt on “Sales Comparison Approach” on Titanium for more
information about it). Your main job is to collect the information of newly listed subject property
and the information of 3-4 recent sold properties similar to subject property (comparables) from
the websites. Then conduct a thorough analysis of the subject property’s value using sales
comparison approach. The relevant information on subject property and comparable properties
could be found at the website providing information on real estate transactions. It is free access for
everyone. You could learn about the recent listings and recent sales for any place you are interested
through these websites. The most frequently used website are the following websites:
• Google: “## City Home for sale” • Zillow • Ziprealty • Realtor.com • Trulia
• Redfin
Sales comparison approach
• Principal • Substitution principle • One price rule – equivalent goods tend to sell for
equivalent prices • Approach
• Identify sales of similar properties • Adjust sale prices to reflect differences from the subject
property • Typical adjustments include sales date, size, age,
condition, location, amenities and key features
Subject property: You may choose four bedrooms or five bedrooms single family property as the
subject property of appraisal at a city with active housing market. An active housing market means
there are a lot of transactions going on. This property should be a property currently listed for sale.
The newly listed subject property should have a time on market (TOM)1 less than 3 months. If a
property has been listed on the market for fairly long time without a sale, there may be some hidden
problem with the property, or the listed price is not set well. The new listings information could
be found in all the major websites for real estate transactions. Do NOT use listing for new
construction as your subject property, which is not a good choice for practicing the sales
comparison approach.
Selection of Comparables: It is very important to select good comparables. The more similar the
comparables relative to the subject property, the less adjustment you do and the more accurate is
1 Time on Market (TOM, alternatively marketing time or days on market) is a measurement of the age of a real estate listing. It is the difference between the listing date of a property and the date of sale (the date of your estimate in this case).
your estimate. You may refer to the file “Zillow Comps” on Titanium for more information of
selecting comparables.
• Geographically closer is better • Same neighborhood or similar neighborhood (zip code,
neighborhood level) • Same “market area” – if not enough comparables in the
same neighborhood • Physically similar is better
• Size & design, Lot size, Age, etc. • Most recent sales better, possible values change w/time
• Residential within recent 3-6 months • Time on market - within reasonable range
• How many Comps are enough?
• 3 - 4 is the norm, “any new insights from the next best comp?” • Use of “Listings”
• Not preferred • Tends to set an upper limit; Requires adjustment • Not accepted under certain circumstances
Formatting: The report should be approximately 15-20 pages, double-spaced, 12-point font.
Although there are not rigid formatting requirements, please see The Business Writer’s Handbook
for helpful formatting suggestions. At minimum, the report must include:
(1) a Title page,
(2) a Table of Contents,
(3) an Executive Summary [a ½ to ¾ page overall summary of the points raised in the
paper],
(4) an Introduction—setting out the material to be examined in the paper,
(5) a Discussion and Analysis section (including the excel table of adjustment),
multiple pictures could be displayed within one page for the concern of page limit,
(6) a Conclusions section, and
(7) a Works Cited section, listing all secondary sources consulted in preparing the
report.
Due Date (Project Report Due Session on Titanium):
Please submit a digital copy of the report and the excel table of adjustment before the specified due date on the course website via the submission link on Titanium.
Please name both the digital files as:
FIN353 Report_StudentName_City of Subject Property
Important Note:
You cannot use the assumptions of various adjustment costs
in the appraisal example directly on your report. The
assumptions for adjustment are from the neighborhood
information of the set of properties you select, such as housing
market change rate, price/sq.ft for living area and lot size, etc.
Doing research on these assumptions is an important part of
this project. Doing research on these assumptions is an
important part of this project. You could use Zillow, Redfin,
Trulia and google to find evidence supporting the assumptions
using in your adjustments.
FIN 353 Appraisal Project White Paper
On
Single Family Residence
At (Address)
City, State, Zip
PREPARED FOR
(FIN 353 course)
(California State University, Fullerton)
(2550 Nutwood Ave)
(Fullerton, CA 92831)
PREPARED BY
(Student’s Name)
DATE OF REPORT
(Date)
Key information to be included in part 5 discussion:
Property Information Property Type: Residential Single Family
Property Address2:
Real Property Interest: Fee Simple
Type of Value: Market Value
Intended Use: Sell
Intended User: Seller
Time on Market3:
Property Attributes
Age (year built)
Building Size (square footage)
Rooms (?BR/?Bath)
Garage (size)
Design (0ne story, two-story, etc)
2 a permanent and absolute tenure of an estate in land with freedom to dispose of it at will, especially in full fee simple absolute a freehold tenure, which is the main type of land ownership. 3 Time on Market (TOM, alternatively marketing time or days on market) is a measurement of the age of a real estate listing. It is the difference between the listing date of a property and the date of sale (the date of your estimate in this case).
Upgrade
List of repairs & estimated cost
Subject history (the date and price of previous sales for the subject property if there is any. It is
available on these websites listed earlier as well.)
Neighborhood Information
Neighborhood Analysis
Neighborhood Price Trend (search online)
County Level
City Level
Zip code level
Neighborhood Level
Local Amenities
such as distance to park, mall, grocery stores, major amenities nearby, etc
School District (Ratings, etc)
Local and Regional Market Information
Pictures of the subject property
(Professional pictures of listings are usually available on these websites listed earlier. The listing
agents use these pictures to give potential buyers a good idea of the current condition of a
listing.)
Exterior Pictures
Such as External view of the property, backyard, pool, patio, etc
Interior Pictures
Major indoor areas such as living room, kitchen, dinning room, master bedroom,
bathroom, etc
Information of Comparable properties
The detailed information of comparables properties could be listed within a table. You may also
provide one external picture of each comparable to give the readers a rough idea of each
comparable. See the table of comparison from the appraisal example in the following session for
an example.
Adjustments process
-Identify sales of similar properties -Adjust sale prices to reflect differences from the subject property -Typical adjustments include sales date, size, age, condition, location, amenities and key features
The key idea is
-to adjust the comparable as similar as the subject property, in terms of sale time (market
condition), physical characteristics, etc.
-and get the adjusted price from each comparable as a proxy for the estimate of subject
property.
-then draw your conclusion of the price of subject property
(you could average all the estimates from comparables or assigning different
weights on each estimate. For instance, you could give more weights on the
adjusted price of comparables which are more similar to the subject property and
less weights on the adjusted price of comparables which are less similar to the
subject property)
Important Notes:
Given the specific city where your subject property is located, you need justify the number of
adjustments for each change in your table. You may search the following information online:
cost of pool
cost of additional bedroom/bathroom
cost of additional patio/pool/wooddeck or another attribute
housing price appreciation rate in local market
value of incremental square footage of lot size/living area in the local city
You cannot use the assumptions of various adjustment costs
in the appraisal example directly on your report. The
assumptions for adjustment are from the neighborhood
information of the set of properties you select, such as housing
market change rate, price/sq.ft for living area and lot size, etc.
Doing research on these assumptions is an important part of
this project. You could use Zillow, Redfin, Trulia and google
to find evidence supporting the assumptions using in your
adjustments.
Final Consolidation
Derive your final estimate of subject property based on the Indication values from each
comparable. Just the weights you give to each comparable in your report.
The Appraisal Example for Adjustments
The following appraisal example provides details on how to adjust between comparables and
subject property. You may apply similar approach in your report, with the information of subject
property and comparables collected by yourself.
Class Example: The Appraisal Example
You are appraising a single-family residence located in the Huntington neighborhood at 4632 NW 56th Drive. The property is being acquired by a mortgage applicant and you have been asked to appraise the property by the lender. Seven potential comparable sales were initially identified. However, three of these seven were highly similar to the subject property in their transactional, physical and locational characteristics. You therefore decided to exclude the other four transactions from the comparable set.
The elements of comparison you used to compare and adjust the sale prices of the comparable properties are listed in the market data grid below. The property rights being conveyed in the acquisition of the subject property are fee-simple absolute. Conventional mortgage financing will be used by the purchaser and the acquisition appears to be an arm’s length transition. Thus, no adjustments need to be made to the sale prices of the comparable properties for the type of property rights conveyed, financing terms, or conditions of sale. However, the buyer of comparable 2 was aware that she would have to replace one of the air conditioning units immediately after acquiring the property; thus, she was able to negotiate a $3,000 price reduction from the seller.
Comparable 1 sold three months ago, while comparables 2 and 3 sold six months ago. Based on your knowledge of recent price appreciation in this market, you have decided that comparable 1 would sell for 2 percent more if sold today and that comparables 2 and 3 would sell for 4 percent more if sold today. The subject property is located in Huntington, as is comparable 1. However, comparables 2 and 3 are located in Kensington and Millhoper, respectively. Although Huntington is a high-end neighborhood, both Kensington and Millhoper are generally considered to be slightly more desirable, In fact, homes in these two neighborhoods generally sell for about a 3 percent price premium relative to similar homes in Huntington.
In these neighborhoods, an incremental square foot of lot size or living area is worth about $20 per square foot and $80 per square foot respectively. Each year of effective age reduces the value of properties in this market by about $3,000 per year. You experience suggests that each additional half-bath is worth $500; each additional full bath $1,000. Additional garage spaces, wood decks, and pools in these neighborhoods are worth $8,000, $1,000, and $12,000, respectively. No significant non-realty items were included in the comparable transactions and non-realty items are not part of the acquisition of the subject property.
Based on the above discussion of the elements of comparison, complete an adjustment grid for the three comparable properties. What is the final adjusted price (indication of the subject’s value) for comparable 1, 2, and 3?
Table of comparison
Sales Comparison Approach: Market Data Grid for 4632 NW 56th Drive
Comp Comp Comp Elements of Comparison Subject Sale 1 Sale 2 Sale 3 Sale price of comparable $510,000 $525,000 $499,000
Transaction characteristics Property rights conveyed Fee simple Same Same Same Financing terms Conventinal Same Same Same Conditions of sale Arm's length Same Same Same Expenditures immed. after purchase None $3,000 None Market conditions Today 3 mos. ago: 6 mos. ago: 6 mos. Ago:
add 2% total add 4% total add 4% total Property characteristics Location Huntington Huntington Kensington Millhoper Physical characteristics: Site/lot size 6,662 sq. ft. 6,700 sq. ft. 6,800 sq. ft 6,600 sq. ft Construction quality Typical Typical Typical Typical Condition Average Average Average Average Effective age 5.5 years 7 years 8 years 10 years Living area 3,473 sq. ft. 3,920 sq. ft. 3,985 sq. ft. 3,835 sq. ft. Number of baths 3.0 baths 3.5 baths 3.0 baths 2.0 baths Garage Spaces 2-car 2-car 2-car 1-car Porch, patio, deck Cov porch/wood deck Cov. Porch Cov. Porch Cov. Porch Fence, pool, etc. None None Pool Pool Economics characteristics N.A. N.A. N.A. N.A. Use Single-family Same Same Same Non-realty components None None None None
The adjustment process is in the excel file “Appraisal_Example_Full_Solution” and the
Appraisal_Example_Video on Titanium.
