Sales Comparison Approach

1. Sales Comparison Approach The Adjustment Process Wayne Foss, MBA, MAI, CRE Foss Consulting Group Email: wfoss@fossconsult.com

2. Sales Comparison Adjustments Since no two properties are ever exactly the same, adjustment must be made to compare one property to another. Comparison adjustments help us take into consideration such differences when using one property to estimate the probable value of another.

3. Sales Comparison Adjustments Key: The underlying idea is to “adjust” the sales price of the comparable answering the question: --What would the comparable sale property have sold for IF it had the characteristic(s) of the subject? That best indicates subject value.

4. Making Comparison Adjustments • You are appraising a vacant lot - a building site for a home • It is an ‘interior’ site - not a corner • You investigate sales of similar property and find . . . • A similar vacant lot sold for $200,000. BUT it had a nice corner location.

5. Making Comparison Adjustments • Interviews indicate buyers pay $25,000 more for corner locations. • Based on the information you have, how much is the subject worth? Subject Site Corner site sold for $200,000

6. Making Comparison Adjustments • Sales Price of the “Comparable Sale” Property: • Adjust to the subject for corner location • Indicated Value of Subject: $200,000 -$ 25,000 $175,000 Notice, the subject does not have corner location and would be worth less than the comparable sale, so a negative adjustment is made.

7. Making Comparison Adjustments Remember, adjustments are made to the price of the comparable: • adjust UP when the subject is SUPERIOR; • adjust DOWN when the subject is INFERIOR to the comparable property

8. Making Sales Comparison Adjustments • The same subject has a very good view of the ocean. • A recent sale of another similar site is found; it sold for $150,000, but only has an average view. • You find that in the market, sites with very good ocean views sell for about $15,000 to $30,000 more than ‘average’ sites with no particular view.

9. Making Sales Comparison Adjustments • Sales Price of the “Comparable Sale” Property: • Adjust to the subject for view premium • Indicated Value of Subject: $150,000 +$ 20,000 $170,000 Notice, the adjustment is UP because the subject is superior and would be worth more than the comparable sale.

10. Making Sales Comparison Adjustments • After adjustment, the sale on the corner indicates the subject is worth $175,000 • After adjustment, the sale with the average view indicates the subject is worth $170,000 • What is your estimate of value for the subject? $________________ • Why?

11. Sale No. 1 Sale Price: $ 200,00 Corner Adj: -$ 25,000 Indicated Value of the subject: $175,000 Sale No. 2 Sale Price: $150,000 View Adj: +$ 20,000 Indicated Value of the subject: $170,000 Making Sales Comparison Adjustments It is not unusual to have more than one indication of value. Your final estimate is based on the quality and quantity of data. Which sale is most similar? What is your best indication?

12. Making Sales Comparison Adjustments • Usually a sales grid or spreadsheet is used because there are normally • several sales • several items for adjustments • There are normally multiple indications of value - and different indications of value from each sale used.

13. Sales Comparisons The final conclusion relies on appraiser’s judgement which is based on: • Quality of data; I.e. Degree of similarity, reliability, confirmed reliable information • Quantity of data • Upper limit indications - offers to sell • Support - Sources for adjustment amounts • Market outlook

14. Sales Comparisons Remember, . . . • Value is the present worth of expected or anticipated benefits; so market outlook is important • Hopefully market outlook is reflected in the prices of the comparable sales

15. Sales Comparisons Some of the items to consider for adjustment in comparing sales of vacant land include: • property rights transferred • financing influence on price • sale conditions (motivations) • note: match definition of market value • market conditions, time, date of sale

16. Sales Comparisons Some of the items to consider for adjustment in comparing sales of vacant land include: • Location, (physical, social, legal-political) • Physical characteristics; size, shape, topography, views, corner, access • Legal considerations: easements, use restrictions (public and private) • Non realty components

17. Sales Comparisons For Improved Property, add improvements physical characteristics such as: • size, • construction type, alternate uses • materials, quality of construction • age, condition • layout, functional utility, design • and, if applicable, lease terms & conditions

18. Sales Comparisons Remember when making comparison adjustments: • adjust the price of the comparable UP when the subject is SUPERIOR • adjust the price of the comparable DOWN when the subject is INFERIOR It works every time!!

19. So that’s the Sales Adjustment Process Are there any Questions? Wayne Foss, MBA, MAI, CRE, Fullerton, CA USA Phone: (714) 871-3585 Fax: (714) 871-8123 Email: wfoss@fossconsult.com