FIN353
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 transition. 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; 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. You experience suggests that each additional half-bath is worth $500; each additional full bath $1,000. Additional garage spaces, wood decks, and pools in these neighborhoods are worth $8,000, $1,000, and $12,000, respectively. No significant non-realty items were included in the comparable transactions and non-realty items are not part of the acquisition of the subject property.
Based on the above discussion of the elements of comparison, complete an adjustment grid for the three comparable properties. What is the final adjusted price (indication of the subject’s value) for comparable 1, 2, and 3?
Sales Comparison Approach: Market Data Grid for 4632 NW 56th Drive
Comp Comp CompElements of Comparison Subject Sale 1 Sale 2 Sale 3Sale price of comparable $510,000 $525,000 $499,000
Transaction characteristicsProperty rights conveyed Fee simple Same Same SameFinancing terms Conventinal Same Same SameConditions of sale Arm's length Same Same SameExpenditures immed. after purchase None $3,000 NoneMarket conditions Today 3 mos. ago: 6 mos. ago: 6 mos. Ago:
add 2% total add 4% total add 4% totalProperty characteristicsLocation Huntington Huntington Kensington MillhoperPhysical characteristics: Site/lot size 6,662 sq. ft. 6,700 sq. ft. 6,800 sq. ft 6,600 sq. ft Construction quality Typical Typical Typical Typical Condition Average Average Average Average Effective age 5.5 years 7 years 8 years 10 years Living area 3,473 sq. ft. 3,920 sq. ft. 3,985 sq. ft. 3,835 sq. ft. Number of baths 3.0 baths 3.5 baths 3.0 baths 2.0 baths Garage Spaces 2-car 2-car 2-car 1-car Porch, patio, deck Cov porch/wood deck Cov. Porch Cov. Porch Cov. Porch Fence, pool, etc. None None Pool PoolEconomics characteristics N.A. N.A. N.A. N.A.Use Single-family Same Same SameNon-realty components None None None None
