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the
adjustment
process
under direct
comparison
2/9/2011
APPRAISAL PRINCIPLES
2/9/2011
2/9/2011
APPLICABILITY AND
LIMITATIONS
2/9/2011
2/9/2011
Design
Size, floor plan, additives
Construction and Maintenance
Quality of construction
Level of maintenance
Equipment/Fixtures
2/9/2011
Age
Effect can be altered through
renovations
Reconcile
Natural Features
Topography, shape, view, etc.
Proximity to Amenities
Shopping, schools, employment, CBD,
transportation routes, etc.
Services, tax levels
2/9/2011
Lot Size
Will determine what kind of building
can be erected
Shape can also affect value
Area vs Depth vs Frontage
Whats important?
6300
sq ft
2/9/2011
Site Adjustments
Research
Adjust
Irregular Shape
Based on the loss of utility of the lot
Reconcile
MAKE ADJUSTMENTS
2/9/2011
Make Adjustments
Research
Adjust
Reconcile
Elements of Comparison
Research
Adjust
Reconcile
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2/9/2011
Elements of Comparison
Order of
these
first five is
mandatory!
Property
Transactional
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Reconcile
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2/9/2011
Financing Terms
Research
Adjust
Reconcile
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2/9/2011
13
2/9/2011
Location
Different neighbourhoods,
corner lots, etc.
Reference to
positive/negative locational
influences
Excessive locational
differences may exclude a
property from comparison
Physical Characteristics
Research
Adjust
Reconcile
Site
Size, shape, view, topography, etc.
Improvements
Size, quality, condition, age, amenities,
etc.
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2/9/2011
Economic Characteristics
Research
Adjust
Reconcile
Use/Zoning
Research
Adjust
Reconcile
15
2/9/2011
Non-Realty Components
Research
Adjust
Reconcile
16
2/9/2011
TYPES OF ADJUSTMENTS
Quantitative adjustments
Dollar or percentage amounts
Use if sufficient information is available
Qualitative adjustments
Non-numerical
Use if sufficient information is not
available
Requires considerable appraisal
judgment
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2/9/2011
QUANTITATIVE ADJUSTMENTS
Methods
Research
Adjust
Reconcile
Dollar adjustments
A dollar amount is attached to the
difference between the subject and
the comp
Best suited to physical, motivation,
financial adjustments
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2/9/2011
Methods
Research
Adjust
Reconcile
Percentage adjustments
A percentage amount is attached to
the difference between the subject
and the comp
Best suited to market (time) and
location adjustments
Example
Houses are valued at $40 per square foot
Subject has 1,000 sq ft
Comp has 1,100 sq ft
Diff = 100 sq ft (1,100 1,000 = 100)
100 sq ft x $40 per sq ft = $4,000
Adjust the comp downward by $4,000
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2/9/2011
2 Bedrooms
Assumptions
Research
Adjust
Reconcile
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2/9/2011
1,000 sq ft
$40/sq ft
2,000 sq ft
$40/sq ft
5,000 sq ft
$40/sq ft
Assumptions
Research
Adjust
Reconcile
21
2/9/2011
$300,000 house
with 3 bedrooms
$250,000 house
with 3 bedrooms
1 Bedroom = $30,000
1 Bedroom = $25,000
Assumptions
Research
Adjust
Reconcile
22
2/9/2011
QUALITATIVE ADJUSTMENTS
Qualitative Methods
Research
Adjust
Reconcile
23
2/9/2011
Comp #1
Comp #2
$185,000
$192,000
Location
Inferior
Superior
$192,000
Reconcile
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2/9/2011
Making Adjustments
Comparable Property
Adjustment
25
2/9/2011
Paired Sales
Statistical Analysis
Cost Analysis
Capitalization of Rent Loss
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2/9/2011
Paired Sales
Research
Adjust
Reconcile
House Size
Sale Date
Location
Condition
Sale Price
1,969
September
Good
Average
$222,250
2,055
September
Poor
Good
$231,000
2,055
July
Poor
Good
$233,000
1,969
March
Poor
Average
$223,500
1,969
March
Good
Average
$226,900
2,055
July
Poor
Average
$230,000
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2/9/2011
House Size
Sale Date
Location
Condition
Sale Price
1,969
September
Good
Average
$222,250
1,969
March
Good
Average
$226,900
$226,900
March
$222,250
September
$4,650
6 mths
House Size
Sale Date
Location
Condition
Sale Price
2,055
September
Poor
Good
$231,000
2,055
July
Poor
Good
$233,000
3
2
$233,000
$231,000
$2,000
July
September
2 mths
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2/9/2011
House Size
Sale Date
Location
Condition
Sale Price
1,969
March
Poor
Average
$223,500
1,969
March
Good
Average
$226,900
$223,500
Poor
$226,900
Good
$3,400
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2/9/2011
Subject is a 12-unit
apartment building
located downwind
of a new asphalt
batching plant
Sale A is a vacant
lot adjacent to the
subject, zoned for a
12-unit apartment
building, which sold
for $36,000
Sale B is a vacant
lot on the other side
of town, zoned for a
12-unit apartment
building, which sold
for $48,000
Sale C is a 9-unit
apartment building
in the subjects
neighbourhood,
which sold for
$459,000
Sale D is a 10-unit
apartment building
on the other side of
town, which sold for
$540,000
SP
Subject
Apt
12 unit
Yes
Sale A
VL
12 unit
Yes
$36,000
Sale B
VL
12 unit
No
$48,000
Sale C
Apt
9 unit
Yes
$459,000
Sale D
Apt
10 unit
No
$540,000
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2/9/2011
Sale B (unaffected)
Sale A
Difference
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2/9/2011
Property Adjustment
$12,000
$24,000
32
2/9/2011
Statistical Analysis
Research
Adjust
Reconcile
Cost Analysis
Research
Adjust
Reconcile
33
2/9/2011
Cost to Cure
Research
Adjust
Reconcile
Adjust
Reconcile
Process
1. Calculate
lost rent
2. Capitalize
lost rent
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2/9/2011
V = Value
I = Income
R = Capitalization Rate
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2/9/2011
10%
4,000 sq ft
$8.00/sq ft
$6.25/sq ft
Rent Loss
=
Total Rent Loss =
Locational
Influence
=
$1.75/sq ft
$7,000
($8.00 $6.25)
($1.75 4,000 sq ft)
$70,000
($7,000 10%)
RECONCILIATION
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2/9/2011
Rationale
Research
Adjust
Reconcile
Reconcile
37
2/9/2011
Net Adjustment
Difference between sale price and
adjusted sale price
Gross Adjustment
Total adjustments (ignoring negative
signs)
Net v. Gross
Research
Adjust
Reconcile
Example A:
Example B:
Time
Time
+ 10,000
+ 2,500
Location 5,000
Location 1,000
Size
Size
+ 1,500
Adj S/P
$199,000
Adj S/P
$203,000
Net Adj
= 3,000
6,000
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2/9/2011
Reliability of Adjustments
Research
Adjust
Reconcile
39
2/9/2011
Research
Adjust
Reconcile
Mark Leavens
Real Property Administration Program
(416) 4915050, Ext. 6390
Mark.Leavens@senecac.on.ca
Kent Peel
School of Public and Legal
Administration
(416) 4915050, Ext. 2198
Kent.Peel@senecac.on.ca
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