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- Cost Indices
(Cost Indexes)
- General Data
- Micro Data
- Secondary Data
- Specific Data
- Quantitative Analysis
- Cost Reporting Services
- Capitalization Rates
- Macro Data
- Primary Data
- Public Records
- Quantitative Data
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- General Data will help you
understand the influence of the four forces originating outsi=
de a
property and their effect on the property. These forces are; Social – Econo=
mic –
governmental and environmental.
- General Data is classified as
primary or secondary.
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- Primary data becomes secondary data when it is made available for the
public as general use.
- Secondary data could be
employment statistics, popu=
lation
information, or income levels.
When an appraiser relies on the information gotten from others
they are relying on secondary data.
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- Macro Data is data covering the larger picture.
- Total employment at the local, regional, and national levels.
- Income for the regional and national
area would be Macro while local income would be Micro.
- Product growth or decline.
- Interest Rates – Balance of Traces.
- Usually general data obtained from secondary sources.
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- Micro Data on the other hand is more specific to the property that y=
ou
are appraising.
- Local Incomes – Vacancy Factors for the area.
- Comparable properties used for comparables.
- Micro Data can be from a Primary Source or a Secondary Source.
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- General Data provides a background against which to place analysis of
the subject property, supplies information from which possible trends
affecting values can be inferred and figures derived for calculations
within the three approaches.
- Forms a basis for judgments about highest and best use, reconciliati=
on
of value indications within the three approaches, and the final esti=
mate
of defined value.
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- Today there is almost unlimited supply of data. Although good unbiased data pert=
aining
to local communities can be difficult to find, it is usually availab=
le.
- Some states have online retrieval systems that provide historic and
current economic, social and governmental data.
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- The entire appraisal process is dependent upon the collection and
analysis of specific data from the market. All three approaches to value are
really market approaches and depend upon accurate and reliable marke=
t data.
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- Specific Data is analyzed through the process of comparison. The key task is locating data th=
at
provides the information needed to apply the correct techniques in e=
ach
of the three data approaches to value.
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- A study is made to find the comparables sales and listing whose cost=
s,
income and expenses information are similar to the subject
property. Usually the more =
recent
the comparable the current sale and the more similar it is to the
subject property, the better it will be as an indicator of value. Usually more data are gathered t=
han
are actually used in the appraisal.
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- After a complete analysis of the subject property’s characteristics =
and
components the comparables are gathered.
- The comparables should be comparable in lot size, age, improvement s=
ize,
and location.
- When comparable sales data in the area is limited the appraiser may
reach outside of the area into similar properties in a similar area.=
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- Number of sales
- Period of time covered by the sales
- Availability of property for sale on the market
- Rate of absorption
- Rate of turnover
- Characteristics and motivations of buyers and sellers
- Terms and condtiions of the sales
- Use of property before and after the sale
- Other significant characteristics
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- Multiple Listing Records
- Public Records
- Deeds
- TransferTax Records
- Real Estate publications
- Realtors
- Property managers - tenants
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- Public Records refer to information that is available to the
public. This information is
normally a month or two old depending on your source for the
information.
- Once a record is recorded at the County Assessors Office, the data
reporting services (Trans-Union, Esperian, and Data Quick) log it in=
to
their computers, the very new information is more valuable so most
services sell brand new or 30 day information.
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- Again Deeds become availabe
according to which services you are subscribing to. Most services provide you with 3=
0 day
information as the 3 day information is too expensive.
- This will not be as timely as you may need and could paint an inaccu=
rate
picture of hwat is gotin on in a given neighborhood.
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- The Tax Records don’t become availabe for at least one month after t=
he
recordation of the properyt. In
some counties the information does not become available for 6 months=
or
a year.
- For those reasones you have to carefully check the date of recordati=
on
to see if the data is usable for your comparison work.
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- Assessment Records in California take almost one year before the tax rolls ha=
ve the
actual information that you will be using today. The tax information as a “Tax Sh=
eet”
is more timely than this source.
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- Real estate newspapers are good sources of General Information but n=
ot
Timely General Information.
- Most real estate news sources are more regional and national than lo=
cal
in nature.
- So, while they are good sources of information they are not normally
good sources of comparable information.
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- Commercial Publications give information concerning commercial
properties and can be revealing.
They are not good sources of comparable information for sales,
rents, capitalization rates, gross rent multipliers, etc., but may be
good sources of information concerning the use of these valuation to=
ols.
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- General Circulation Newspapers give you an overview of information t=
hat
you should know. You have t=
o keep
in mind that the author normally has limited knowledge of the report
that they are writing and are more “parroting” the information than
reporting and commenting on it.
- Be aware than when reading a newspaper any necessary information can
normally be gleaned in the first paragraph. After the first paragraph the
information simply gets more involved.
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- Realtors and Real Estate Brokers can be very good sources of
information. Normally they =
are
dealing very rapidly and un=
less
the property has something to do with their business and income they
won’t normally be very helpful.
- When they are involved in the transaction you have to be extremely
cautious of them “puffing” the value of a property.
- They are salesmen and can be convincing , and less than truthful.
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- Shared Sales Data ahs to do with sharing information with other
appraisers. This is a VERY =
common
practice within our industry. IF
the appraiser is competent then the information you will get will
normally be truthful, accurate, timely, and relevant.
- Like any profession the culpability of any information gotten from
another depends on them and their interpretation.
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- Property managers can be a rich source of rental information, expens=
es
of operation, and vacancy r=
ates.
- Two problems enter here. Th=
ey are
often afraid that you are appraising the building they manage, it’s =
been
sold, and they will lose their position. The second thing is that th=
ey
feel they are giving private information of the company or owner they manage the building f=
or.
- I’ve found that trading information works well with managers. “ I’ll
share all the rents, expenses, and vacancies I’ve gathered if you’ll
give me your rents, expenses, and vacancies.
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- Multiple Listing Services are normally a very rich source of very
coveted information. Here y=
ou can
get comparable sales data, comparable rents, capitalization rates, a=
nd
gross rent multipliers.
- You will have to learn to use the particular Multiple Listing Service
that gives the information needed for the area you are working in.
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- The other thing is you’ll have to join that particular MLS – it is w=
orth
the information that you will have available to you as a member.
- Since you are not going to be entering your listings in the board you
normally attain member ship for less than the Realtor Members.
- Currently the 3 Boards that I belong to cost about $800 per year
each. In those boards an
affiliate appraiser member is about $120 a quarter, or $480 a year –
about ½ of what I pay as a Realtor Member.
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- These are available in California but have rarely been used, as such,
since approximately 1980.
- Since that time the information is made available to us through the
various Boards of Realtors, and or “Free Subscriptions “from Title
Companies.
- The Title Companies will give you a free “Property Profile” or “List=
ing
Package”
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- The information coming from the title companies ahs all of the
information we used to get from the County Assessors Maps.
- While these services CAN be yours for the asking the Title
Representative will need to understand why they benefit f=
rom
your services.
- Usually making yourself available for consultation will give them wh=
at
they will need to clear the association through the hierarchy.
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- Each sale used as a comparison by the appraiser should be viewed “at
least” from the outside. Id=
eally
an interior inspection would be more desirable, but while the polish=
ed
appraiser can accomplish that, the new appraiser rarely learns that
technique. The owner of a
comparable has literally no interest in the appraiser looking at the
interior of their home, except to give them an idea how it compares =
with
other properties. Use that.=
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- A conversation with the broker who had the listing or the broker who
came up with the buyer should give you some insight concerning the
desirability of the property for a comparable.
- Again, the brokers have very
little interest in your need for information. Unless, they are parties to the
transaction.
- When they are parties to the transaction, they will often exaggerate,
even lie.
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- In days gone by, in California, we did use filing systems in the way=
of
3X5 cards and old real estate boards books of listings and books of
comparables.
- That has gone the way analogue television sets. Our filing system today is all on
computer and will normally be contained in the data that you had
gathered from a previous appraisal.
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- You should be learning that all information finally comes to us from
data.
- All three areas of appraisal;
- The Comparable Approach to Value
- The Income Approach to Value
- The Cost Approach to Value
- are accurately arrived at because we have actual data that is
representative of what we need for what we are tying to produce.
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- Knowing that the information from all areas comes to use from
comparables is helpful in this way;
- Comparables Sales Approach – Improvements that have already been sold
and are very similar to the property or can be accurately adjusted.<=
/li>
- Income Approach Information – from similar sales of similar property=
and
their rents and expenses.
- Cost Approach Information – from comparable sales and from Cost Manu=
als,
such as Marshall and Swift.
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- Cost Reporting Services
- Cost Reporting Services are the normal way for us to get Cost Data.<=
span
style=3D'mso-spacerun:yes'> The manual we most use is the Ma=
rshall
and Swift Manual. We will =
use
that manual in this class, briefly.
- In-Office Cost Data Files
- From past appraisals that you, or another trusted appraiser have done
you will have a rich source of Improvement Cost Data
- Remember that Cost Data can be;
- Replacement Cost (Usual)
- Reproduction Cost (Rare)
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- We can use these in California but we rarely do. They are constructed to give us =
the
historic cost for a year, with the current index. If we divide the Historic Cost i=
nto
the Current Index, or the I=
ndex
for a future year, we will come up with a multiplier. That multiplier times the cost w=
hen
built should give us the current cost to build.
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- For example if we have a current cost, as per our text book of 332.5=
for
2009 and a cost for 2004 of 284.4 we would dived 332.5 by 284.4 and =
come
up with 1.1691 this becomes the multiplier of a 2004 to move up to t=
he
present. If it cost us $100=
,000
to build something in 2004 we would multiple $100,000 X 1.1691 and c=
ome
up with $116,9127989 for today's cost.
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- Conversely, when using these indexes,
if we use the reciprocal of
today's cost, that is, divide 1.1691 into 1 we will come up w=
ith
0.8553 and that number times the current value of $116,912.7989 will
give us$100,000.
- The indices (indexes) work in both directions. Which helps us in
understanding values indicated by indices or indexes.
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- Income and expense data, including Gross Rent Multipliers and
Capitalization Rates are arrived at by extracting the information from the compara=
bles
that we are using.
- If we have an exact comparable and it indicates a rent of $1,800 for=
a 2
Bedroom, 2 Bath apartment unit we can use that rent on the building =
we
are appraising.
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- We normally use comparable rents that reflect the top market rents, =
the
current rents of the building.
- The exception to that would be in rent controlled areas of Los Angel=
es,
or any other city with rent control.
- The same thing is true of expenses and vacancy rates, as well as the
capitalization rate and the gross rent multiplier.
- If the building we are appraising is not a good representation of wh=
at
it should or could be doing we adjust it to reflect the actual
market. WE do that from dat=
a we
gather from the comparables.
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- Capitalization Rates used on Income property are a percentage known =
from
other investments, or “The Market” as we say, and divided into the n=
et
operating income.
- IF you are actually using comparable property, and the neighborhoods=
are
at least similar, you have a very accurate tool for estimating value=
or
verifying value against your other methods and indicators.
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- General Data
- Primary and Secondary
- Micro and Macro Data
- Collecting Data
MLS – Public Records – Deeds – Tax Records – Real Estate
Publications – Realtors – Property Managers
- Verification of Data
- Filing Data for Future Use
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- Additional Market Data and Sources
- Cost Indices (Indexes)
- Marshal and Swift (Cost Manuals)
- Income and Expense Data
- Gross Rent Multipliers
- Capitalization Rates
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- primary, secondary, old, new.
- Primary, secondary, social, economic.
- Social, economic, governmental, environmental.
- Local, regional, state, nat=
ional.
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- When it contains items of only secondary interest.
- When the government declassifies it.
- After it is 90 days old.
- When it is published and available to the public.
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- National employment trends.
- The number of households in the subject town.
- Regional income levels
- The number of people employed locally in a specific industry.
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- Number of apartment units in the subject’s community.
- Local vacancy rates.
- Census data on household income.
- All of the above.
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- Provides background.
- Supplies information about trends.
- Forms the basis for judgments.
- All of the above.
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- Set the fee for the appraisal.
- Determine how long it will take to complete the assignment.
- The appraiser choose the computer software.
- None of the above.
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- Name of the owner.
- Dimensions of the property.
- Recent improvements to the property.
- Last sale price of the property.
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- Gross living area measurements may be incorrect.
- The description of functional and economic obsolescence may be
incorrect.
- The condition of the house is often exaggerated.
- All of the above.
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- To determine if all depreciation has been considered.
- To determine if the measurements are correct.
- To determine if the price and terms are accurate.
- All of the above.
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- General data.
- Specific data.
- Tax data.
- Site data.
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- Mortgage balance.
- Tax rate.
- Legal description.
- None of the above.
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