What is the number one rule of adjusting properties when using the sales comparison quizlet?

You must record the type of property rights for the subject and all comparables on the Uniform Residential Appraisal Report (URAR). There is a box for this information in the Value Adjustments section, just below the box for location information.

-For residences, the entry in this box may be "Fee Simple". But if it is not, note the variance and assign an appropriate value to it, based on data obtained from the market. For example, if Comparable 1 sold for $220,000 but did not include timber rights, you would search for other comparables with timber rights and compare prices. Comparable 2 was nearly identical to 1, and included timber rights. It sold for $250,000. It would be reasonable to conclude that timber rights were worth $30,000.

"A pledge of a described property interest as collateral or security for the repayment of a loan under certain terms and conditions."

-Lenders are eager to offer loans secured with a mortgage, because homes provide very good security, unlike boats or airplanes for example, because they stay in one location, typically appreciate in value, and have long lives compared with most other assets.
-Over the last decade, though, lenders, investors, and the general public have learned that despite these advantages, mortgage loans still carry a great deal of risk, especially in declining markets.

Financing terms typically impact the interest rate or the payment amount of the mortgage.
-Sale concessions usually are a one-time charge that can affect the sale price as well.

Example: In a slow market or with a seller who is anxious to make a deal, various sale concessions may be employed. Perhaps the only way a buyer could afford the property would be to take an FHA loan which requires three points in addition to the down payment. The seller could agree to pay these three points for the buyer. The parties may or may not then increase the contract price accordingly.
-Let's assume that the negotiated price was $100,000, and the buyer and seller are both content with that price. To make the deal work, the contract could be amended to read $103,000, and the seller would agree to rebate the three points to the buyer at the closing as a sale concession.
-If you investigated this transaction and intended to use it as a comparable sale, you could make a $3,000 adjustment in the sales comparison grid for cash equivalency. This means that it really was a $100,000 sale plus a $3,000 sale concession. In other words, if there had been no sales concessions, theoretically this property would have sold for $100,000.

Federal Housing Administration

FHA addresses the topic of sales and financing concessions in more general terms. In HUD Handbook 4000.1, it states:
-"Sales or Financing Concessions. Account for and adjust for any special sale or financing terms, including sales concessions, nonmarket financing terms, points, buydowns, closing terms and swaps/exchanges. The most common scenario involves the seller paying points in the form of settlement help to the buyer. To reflect the amount, adjust the sales price of the comparable sale downwards. Typically this amount will not exceed six percent of the sales price for typical transactions."

In Handbook 4000.1, it says:
-"Report the type of financing such as Conventional, FHA, or VA. etc.
-Report the type and amount of sales concessions for each comparable sale listed. If no concessions exist, the appraiser must note "none."
-The appraiser is required to make market-based adjustments to the comparable sales for any sales or financing concessions that may have affected the sales price
-The adjustments for such affected comparable sales must reflect the difference between the sales price with the concessions and what the property would have sold for without the concessions"

When we use the sales comparison approach to develop an indication of market value, we are assuming that the comparable sales were:
-Purchased by a "typically motivated" buyer; and
-Paid for in cash or its equivalent, such as financed with a conventional mortgage that was obtained on the open market

If the comparable sale was not cash or its equivalent, the appraiser may need to make adjustments, or, in some situations, disregard the sale as not being indicative of typical financing terms.

You can usually assume that a house would have sold for less money if special financing had not been involved. This means that you must subtract the value of the financing from the price paid. With very rare exception, adjustments for financing terms are always negative adjustments.

Example: A seller determines that his/her house is worth $150,000. Market financing is running 6.5%. The buyer convinces the seller to offer private financing at 5%. In return, the buyer agrees to a sales price of $155,000. It looks like this property sold $5,000 above market on the face of it. This should be confirmed by comparison to other sales to see if this is true.

You must also account for points in cash equivalency considerations. If the seller has paid points for the buyer, these points must be deducted from the sales price if they resulted in an above-market sale. Remember that points are calculated as a percentage of the amount of the mortgage.

Here's how you might adjust in the case of a home that cost $200,000. The first mortgage was $150,000, and the seller paid 1.5 points:

Selling price of home= $200,000
Less value of points (0.015 x $150,000)= $2,250
$200,000-$2,250= $197,750
Adjusted Selling Price= $197,750

Our goal is to figure out what the property would have sold for under normal conditions, then take what it actually sold for and adjust accordingly.

Example: A property sold for $190,000, but we discover that the seller was in a hurry because of a job transfer.
-Hopefully, we could employ a paired data analysis technique. It's our lucky day and we are able to find another nearly identical property that sold under normal conditions for $200,000.
-If we decide to use that sale as a comparable sale, it would need to be adjusted upwards by $10,000 for conditions of sale. That would equate it to the other sale that occurred at $200,000 with a normal time for exposure to the market

What happens if we don't stumble upon a perfect match that we can pair up and compare? At least we might be able to find some other sales that are reasonably comparable.
-Example: The comparable sale was listed at $190,000 and sold in two days for full price. Investigation of the market reveals five sales of similar properties that sold between $195,000 and $205,000 with a normal exposure time to the market of 90 to 120 days. The most similar of them sold for $200,000.

Sometimes, we don't get the whole story... or sometimes the buyer or seller is bending the truth a little or withholding pertinent information.

Then we must compare the sale to sales of other similar properties. If it fits the pattern, then we can proceed. We should explain any actions we took to verify the details and motivations of the transaction, and also explain what we were unable to verify.

"An element of comparison in the sales comparison approach; comparable properties can be adjusted for any additional investment (e.g., curing deferred maintenance) that the buyer needed to make immediately after purchase for the properties to have similar utility to the subject property being valued."

Example: A property is listed for $95,000 and is to be sold "as is." Let's assume it will cost $5,000 to replace the roof. The purchaser might offer $90,000 for the property, knowing full well that as soon as he buys the property he will have to spend $5,000 to make it livable.
-In this case, an adjustment should be made for the $5,000 that the purchaser will be obliged to spend. This assumes that most comparable houses would have an adequate roof.
-In this case, the measure of the adjustment would be the cost to cure. This could be verified by an interview with the buyer to see if he was aware of the situation and what a new roof would cost.
-In actuality, the purchaser might be tempted to offer even less so as to be compensated for the time lost, aggravation involved and uncertainty of the exact costs of the needed repair. A canny purchaser might offer $10,000 less, even though he expects the cost to be only $5,000.

Sometimes market conditions adjustments are relatively straightforward.
-Example: A house sold 14 months ago in an arm's-length transaction for $160,000. The same house sold again two months ago for $176,000. Your research shows that no major improvements were made to account for the increase in value and that this was also an arm's-length sale.
-Because both sales were for the same piece of property, and the sales occurred at the same time of the year, you could logically conclude that values have gone up by 10 percent ($176,000 - $160,000 = $16,000 / $160,000 = 0.10).

This is called a sale and re-sale comparison. It provides the best data for a market conditions adjustment. It represents the perfect paired data analysis - two sales with only one significant difference (in this case, time).

If you have additional data that supports this appreciation rate, you can then use this figure to make adjustments for other comparables. The above example is an easy one. Most often, however, you will not have such a tidy set of data. Instead, you must do considerable market research to become familiar with prevailing conditions.

Information concerning residential sales is more easily available today than it was in the past. Sales information can be found in most areas through online Multiple Listing Services (MLS).

Virtually all MLS organizations are computerized; many have programs capable of generating extensive searches and reports. Most of them routinely generate monthly, quarterly, semiannual, and annual reports on median and/or average sale prices.
-These statistics can be further broken down into the median and/or average prices per designated area or section, number of bedrooms, number of baths, type of property, etc.

Example: you may be able to ascertain that three-bedroom houses on the north side of town sold for a median price of $142,715 twelve months ago and that the median price of those homes for the current month is $158,420. Simple division ($158,420 divided by $142,715 equals 1.11) indicates an increase of 11%.

Sales information recorded in public registers such as assessor's offices is becoming increasingly available online; much of this information is provided for free as a public service.

What is the biggest difference between real property and other major investments?
-Unlike a yacht, a motor home or a 10-karat diamond, real estate is fixed in location and is immovable.
-Location always has a great influence on the value of real property.
-A parcel of real property is a prisoner of its environment, so what goes on around it makes a difference.

You've heard the old saying that the three most important factors in real estate are location, location, location. That saying has become a cliché, mostly because it is true. Sometimes just a matter of a few hundred feet one way or the other changes the value of a property. And clearly, a house located in a secluded community of million-dollar homes will be worth much more than the same type of house in an old, run-down neighborhood.

The concept of real estate value being inextricably linked to location comes to us from the economist Alfred Marshall. In 1890 Marshall published Principles of Economics, in which he described "urban situation value," the main criteria for urban real estate value. His concepts were used as the basis for modern valuation approaches by appraisal organizations when they were formed in the 1930s.

An appraiser must determine the boundaries of the area of influence, whether they be neighborhood, district, or market area, surrounding the subject property, in order to decide what other properties can be considered reasonable comparables.

A market area is an area in which other properties effectively compete for the favors of a potential buyer. There are no hard and fast rules. A market area does not necessarily coincide with a town, village, subdivision, or other designated or mapped area.

A market area could be as small as a block or two or as large as a county, a state, or several states. In this context we are considering residential properties. Certain commercial or industrial properties might have a market area that is nationwide or international in scope. Even some exceptional residential properties could have appeal to potential purchasers from all over the country or all over the world. Think of a mansion in Beverly Hills or a private island in the Caribbean.

Because the boundaries of a market area are indeterminate, we have to brainstorm each new assignment and determine what comprises the market area for that specific property. Perhaps a residence in a suburban development is competing with all other properties within a half-hour commute from a city.

Whenever possible, your comparables should be in the same market area as your subject. If they are subject to the same market forces, it makes one less thing you have to worry about and that takes away the possibility that you might have to make an adjustment for differences in location.

Obviously, staying within the market area is preferable when searching for comparable properties. You might have to make exceptions, however, when:
-Few sales have occurred in the neighborhood
-The subject is in a rural area
-The subject is unusual (a geodesic dome, or log cabin in a neighborhood of traditional ranches, for example)

Be careful, because not all homes in a particular neighborhood or market area are appropriate comparables. A house with a beautiful view would be worth considerably more than a similar house located beneath high-voltage power lines, even if both are in the same subdivision. Another home may have a higher value due to being adjacent to a greenbelt, or a lower value because of being next to a noisy street.

Two condos in the same building may be identical in size, age and layout. But they could have quite different values if one is on the first floor and the other is on the third. Also, value differences might be attributable to view or being situated overlooking the golf course instead of the dumpster.

Each parcel of real property is unique. When initially constructed, houses vary in site, site improvements, quality, layout, and materials employed.

From the moment it is occupied, a house becomes unlike any other. Owners begin customizing and decorating, turning a house into a home. Almost all of the things they do (or don't do) either add to, or detract from, value.

Let's look at the most common physical characteristics of residential property improvements, and investigate how they impact an estimate of value using the sales comparison approach. Specifically, we will cover:
-Design and appeal
-How to estimate quality
-Condition versus age
-Counting rooms
-Square footage
-Basements
-Energy efficiencies
-Garages and carports
-Appliances
-Porches, decks and other structures

Here we will make adjustments for any significant differences between the site of the subject property versus the sites of the comparable properties.

On the site adjustment line in the sales comparison grid, we enter the area of the site for the subject and the comparable properties. This area should be stated in appropriate units of comparison, depending upon the size of the property and the typical units of comparison that would be utilized by buyers and sellers in that market area. If it is a large parcel, use acres. If it is a small parcel, then the area could be stated in terms of square feet. (If the appraisal report is prepared using the UAD, there are specific protocols for reporting site sizes in acres versus square feet.)

The actual dollar amount of individual adjustments for differences in the site size needs to be determined by market comparisons. Site sales need to be researched and analyzed. We need to find sales of vacant sites that are similar as possible to the subject property in terms of value-creating forces such as topography, utilities, etc.

Then, through the use of paired data analysis, we can reconcile and isolate site value per acre, or other appropriate unit. This analysis goes beyond simple arithmetic

We may find sales of comparable properties that are very similar, except for a difference in site size, and can then extract the value attributable to difference in site size through a paired analysis. We can also start with comparable properties that have several significant differences and then make adjustments for the other items. Then if there is still a difference in the sale price we can attribute it to the difference in site.
-Example: Comparable 1 sold for $240,000 and Comparable 2 sold for $228,000. They were very similar except that Comparable 1 had a three-car garage and four acres of land whereas Comparable 2 had a two-car garage and three acres of land. Through a paired data analysis we are able to ascertain that the contributory value of a three-car garage versus a two-car garage is $4,000.

Beneath the Site field on the URAR is the View field. Here we will enter the type of view (e.g., mountain, ocean, lake, other houses etc.)
-Use terms that are as descriptive as possible.
-There are specific UAD protocols for this form field as well, which involve selecting B, N, or A (Beneficial, Neutral, or Adverse) and then selecting appropriate abbreviations from a computer-generated list.

Views may vary greatly, so it is not always easy to attribute a value. Do your analysis carefully, because views may be worth a great deal. Some buyers may prefer a western view to a southern one. Or a particular city view may be worth more if it includes an extraordinary feature, such as the Golden Gate Bridge or Statue of Liberty.

Of course the view from the subject property or a comparable property can be a negative factor as well. The view might be of the backside of the shopping mall or the nearby landfill.

If you make a substantial adjustment, for example a $30,000 adjustment because of the panoramic hilltop view, then it deserves an explanation. In the comments of the sales comparison approach or in the addendum, go into detail about this view. Be sure to include photographs in the report as well. The same goes for the situation in which we have a negative factor attributable to a view.

List the design, or housing style of the subject property and the comparable sales. Use standard terminology such as ranch, Cape Cod, split-level, etc.
-If the style is unusual, make an effort to classify it as succinctly as possible.
-For example, it may be a New England Colonial or a Classical Revival.

Appraisers make adjustments for design and style infrequently, and even then only for cases when a property is significantly different from comparables and its neighborhood. These adjustments tend to be highly subjective and hard to separate from other measures such as quality.

However, sometimes it is necessary to use sales that are not of similar design, and you need to explain this in detail in the report. Remember, there is a question on Page 1 of the URAR that asks "Does the property generally conform to the neighborhood (functional utility, style, condition, use, construction, etc.)?"
-If you answer "no" to this question because the subject property is of a non-conforming style, then you need to address this point in more detail. Explain why or why not you made an adjustment for style, and how much of an adjustment you made.

"The ability of a property or building to be useful and to perform the function for which it is intended according to current market tastes and standards; the efficiency of a building's use in terms of architectural style, design and layout, traffic patterns, and the size and type of rooms."

Are the rooms big enough? Are there enough bathrooms? Do you go through a bedroom to get to another bedroom? Are the stairs too narrow to get furniture and people up and down? Is the design appealing? In other words, if it is meant to be a home, would it have inutility that would impact its value as compared to other homes?
-Determine whether functional utility is adequate or inadequate, or rate it fair, average or good for the subject and all comparables. Enter this information in the URAR form.

If there is a difference in functional utility, do a paired sales analysis to determine a value amount for the adjustment, if possible, and enter it into the grid. The amount of an inadequacy adjustment could possibly be the estimated cost to cure the problem, particularly if the adjustment can't be directly extracted from the market.

Energy-conservation features should be noted in a home, as they can add considerable value. These include solar panels, high R-factor insulation, double or triple-paned windows, and other elements of so-called "green design." Even passive solar features, such as more windows on the south side and fewer on the northern side, can make a difference in northern climes.

A high efficiency furnace would typically be dealt with under the Heating/Cooling line, even though it does have better energy efficiency.

Conversely, a home with single-pane windows and no insulation might also require an adjustment for inefficiency, which can be made on the Energy Efficient Items line or the Functional Utility line in the sales comparison grid.

If the market recognizes no difference in value for energy efficient items (e.g., one house has a high-efficiency furnace and another does not, but both houses sell for the same price) then no adjustment should be made for energy-efficient items.

Note whether the subject and comparables have a garage or carport, and the size (one-car, two-car, etc.). If both the subject and a comparable have garages, note what type they are such as two-car attached garage, two-car detached garage, or two-car attached carport.

Many new houses are being constructed today with three-car garages, though you rarely see three cars stored inside. The extra space is useful for storage and for items such as riding lawn mowers, ATVs, snowmobiles, and boats.

Three-car garages may bring a premium and require a larger adjustment. In other cases, two-car garages may be the norm and a single-car garage may call for a substantial reduction.

-The URAR form is completed, in its entirety, by the appraiser. Once the report form is completed and transmitted to the lender/client, the appraiser must retain a copy in the workfile. This workfile copy can be an electronic copy or a paper copy, but it must be a "true" copy, i.e., an exact replica of the report that was transmitted to the client, including signature(s).

-The Uniform Standards of Professional Appraisal Practice (USPAP) requires appraisers to identify an appraisal report as an Appraisal Report or a Restricted Appraisal Report by prominently stating which option is used in the report. The Appraisal Standards Board of The Appraisal Foundation has expressed the opinion that the content and detail level of the URAR form is generally consistent with an Appraisal Report.

-The appraiser must provide his or her description and analysis of the neighborhood, site and improvements. The appraiser must provide the lender with an adequately supported opinion of market value and a complete, accurate description of the property. The sales comparison analysis should include at least three other comparable properties, and should provide specific sale or financing concession information for them. In addition, the appraiser must attach the standard required exhibits listed in the Fannie Mae Selling Guide or the Freddie Mac Seller/Servicer Guide.

-Remember that the URAR form is designed only for use in reporting appraisals on single-unit residential properties for mortgage lending. Appraisals for other intended uses (divorces, estates, condemnation, etc.) should not be reported on this form.

The Fannie Mae Selling Guide, Section B4-1.2-06, Appraisal Forms and Report Exhibits, includes a list of required exhibits for an appraisal that includes an interior and exterior inspection:
-A street map that shows the location of the subject property and of all comparables that the appraiser used.
-An exterior building sketch of the improvements that indicates the dimensions. (For a unit in a condominium or cooperative project, the sketch of the unit must indicate interior perimeter unit dimensions rather than exterior building dimensions.) ... A floor plan sketch that indicates the dimensions is required instead of the exterior building or unit sketch if the floor plan is atypical or functionally obsolete, thus limiting the market appeal for the property in comparison to competitive properties in the neighborhood.
-Clear, descriptive, original photographs that show the front, back, and a street scene of the subject property, and that are appropriately identified. (Photographs must be originals that are produced either by photography or electronic imaging.)
-Clear, descriptive, original photographs that show the front of each comparable sale and that are appropriately identified. (Fannie Mae does not require photographs of comparable rentals and listings.) -Generally, photographs should be originals that are produced by photography or electronic imaging; however, copies of photographs from a multiple listing service or from the appraiser's files are acceptable if they are clear and descriptive.
-Interior photographs, which must, at a minimum, include the kitchen, all bathrooms, main living area, examples of physical deterioration (if present) and examples of recent updates, remodeling, and renovation (if applicable).
-Any other data - as an attachment or addendum to the appraisal report form - that are necessary to provide an adequately supported opinion of market value.

What is the number one rule of adjusting properties when using the sales comparison approach?

Which adjustment should be made first in the sales comparison grid?

When completing the sales comparison approach which is considered first in the sequence of adjustments?

What are the steps in the sales comparison approach to estimating value quizlet?