Chapter 9
Comparable-Sales Analysis

Nature of the Approach

u   Imperfections of real estate markets

u   Necessity for use of appraisers

Data Collection and Verification

u   Sources

u   Reliability

Adjustments

u   Addition and subtraction of value differences

u   Adjustment of comparables' prices

Elements of Comparison

u   Per apartment

u   Per seat

u   Per front foot

u   Per square foot

u   Per cubic foot

u   Per square foot of gross leasable area

Measuring Rentable Space

u   BOMA method

u  Uses rentable area includes inside dimensions except elevators, stairwells, and utility shafts; restrooms, janitor closets, and utility rooms

u  When entire floor is occupied by a tenant, then the rentable area equals the usable area.

u  R/U ratio used to determine rentable space in an office which occupies less than the entire floor

u   New York method uses outside dimensions to compute the rentable area.

Transaction differences

u   Financing terms

u   Conditions of sale

u   Market conditions

Property differences

u   Location

u   Physical characteristics

u   Economic characteristics (Income properties)

Obtaining Comparable Properties

u   Meaning of comparability

u   Transaction should have occurred within preceding two years

u   Minimum number of transactions required

Methods of Adjustment

u   Units of comparison

u   Dollar adjustments

u   Percentage adjustments

Sequence of Adjustments

u   Percentage adjustments

u  Financing terms and conditions of sale (Normal sale price)

u  Market conditions (Adjusted normal sale price)

u  Location, physical characteristics, and economic (Final adjusted sale price)

u   Dollar adjustments--any sequence o.k.

Presentation of Adjustment Process (See Exhibit 9.4, pp. 143-145)

Comparable Sales Example

u   Subject: interior lot, 2 curb cuts, 21000 s.f.

u   Sale 1:  Sales Price = $98,000
corner lot, 1 curb cut, 20000 s.f.

u    Sale 2:  Sales Price = $108,000
corner lot, 2 curb cuts, 22000 s.f.

u   Sale 3:  Sales Price = $101,000
interior lot, 1curb cut, 22000 s.f.

u   Sale 4:  Sales Price = $93,000
interior lot, 1-curb cut, 20000 s.f.

Sales Comparison Adjustments

u   Adjustment for interior/corner lot:  Compare Sale 1 and Sale 4;  $5,000 difference for corner lot.

u   Adjustment for Size:  Compare Sale 1 and Sale 3;  If Sale 3 had a corner lot, it would have sold for $106,000, so the extra 2000 s.f. cost an extra $8,000 or $4 per s.f.

u   Adjustment for extra curb cut:  Compare Sale 1 and Sale 2;  If sale 2 had 20000 s.f. it would have sold for $100,000, so the extra curb cut is worth $2,000.

Sales Comparison Adjustment Grid

u                Sale1       Sale2        Sale3       Sale4

u   Price  $98,000  $108,000  $101,000  $93,000

u   Curb cut   $0       -$2,000          $0           $0

u   Location   $0            $0       +$5,000 +$5,000

u   Size   +$4,000     -$4,000     -$4,000 +$4,000

u   Adjusted Price
        $102,000 $102,000 $102,000 $102,000

u   Indicated Sales Price is then $102,000

The Value Conclusion

Applicability of Comparable Sales Analysis

u   Active market

u   General use of subject and comparable must be same

u  Relative rents should be similar

u  Relative expenses should be similar

u   On unimproved properties, the zoning should be similar.