Real Estate Investment

Case 1

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 transaction. 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 (which she did); 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. Your experience suggests that each additional half-bath is worth $500; each additional full bath $1,000. Additional garage spaces, wood decks, and pools in Page 189these neighborhoods are worth $8,000, $1,000, and $12,000, respectively. No significant nonrealty items were included in the comparable transactions.

Questions :

1. Based on the above discussion of the elements of comparison, complete an adjustment grid for the three comparable properties.

2. What is the final adjusted sale price for Comparables 1, 2, and 3?

Question:

1. What is the indicated value of the subject using direct capitalization?

Flag question: Question 1

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Case 1:

After transaction adjustments what is adjusted price for comparable 1?

Group of answer choices

520,200

500,200

420,200

510,000

Question 3

Case 1:

After transaction adjustments what is adjusted price for comparable 2?

Group of answer choices

549,120

509,120

649,120

525,000

Flag question: Question 4

Case 1:

After transaction adjustments what is adjusted price for comparable 3?

Group of answer choices

518,960

598,960

578,960

499,000

Question 5

Case 1:

What is final adjusted sale price(after transcation and property adjustments) for comparable 1?

Group of answer choices

488,680

418,680

588,680

458,680

Question 6

Case 1:

What is final adjusted sale price(after transcation and property adjustments) for comparable 2?

Group of answer choices

485,426

445,426

585,426

400,42

Question 7

Case 1:

What is final adjusted sale price(after transcation and property adjustments) for comparable 3?

Group of answer choices

487,171

587,171

417,171

517,171

Question 8

Case 2:

What is the Potential Gross Income (PGI)?

Group of answer choices

66,000

60,000

120,000

55000

Question 9

Case 2:

What is the Effective Gross Income (EGI)?

Group of answer choices

62,700

52,700

12,700

42,700

Question 10

Case 2:

What is the Net Operating Income (NOI)?

Group of answer choices

39,900

29,900

49,900

59,900

Question 11

Case 2:

What is the indicated value of property?

Group of answer choices

$362,727

$462,727

$562,727

$302,727

Question 12

Case 3:

What is the average of four comparable cap rates?

Group of answer choices

0.114

0.1

0.213

0.09

Question 13

Case 3:

What is the indicated value of the property?

Group of answer choices

$390, 351

$490, 351

$350,000

$445,000