Evaluating Property Value and Pricing

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Questions and Answers

The seller is responsible for setting the listing price based on market information.

True

Market price and cost are always the same in real estate transactions.

False

Value in exchange is the subjective value assigned to a property by its owner.

False

A competitive market analysis (CMA) is a formal appraisal of a property.

False Signup and view all the answers

An informed buyer will pay more for a property than for comparable properties.

False Signup and view all the answers

What is a competitive market analysis (CMA) primarily designed to do?

Help sellers decide a realistic price for their home Signup and view all the answers

Which type of value reflects what someone would pay for a property in a fair sale?

Market value Signup and view all the answers

What relationship exists among property's value, price, and cost?

Value, price, and cost may differ significantly Signup and view all the answers

What key factor should be considered when choosing comparable properties?

The properties' recent selling or listing prices Signup and view all the answers

What should an agent consider doing if an appraisal comes in lower than the agreed sales price?

Request a reconsideration of the property's value Signup and view all the answers

Match the concepts with their descriptions:

Value in use = Subjective value by someone who owns or uses it Market price = Price actually paid for a property Cost = Amount of money needed to obtain land and construct improvements Value in exchange = What should be paid if a property is purchased and sold under fair sale conditions Signup and view all the answers

Match the types of appraisal with their purpose:

Competitive market analysis (CMA) = Helps sellers determine a realistic price for their home Formal appraisal = Provides an official estimate of a property's value Low appraisal consideration = Request for reconsideration of property value Price adjustment = Modifying the asking price based on comparables Signup and view all the answers

Match the key factors with their importance in choosing comparables:

Property location = Must be similar to the seller's property Recent sales = Reflect current market conditions Square footage = Size comparison to determine value Property condition = Assess necessary improvements for valuation Signup and view all the answers

Match the evaluation strategies with their correct function:

Analyzing the seller's property = Gather information to inform pricing CMA software = Tool used to facilitate competitive market analysis Presenting a CMA = Showcase adjusted pricing and comparables Coping with a low appraisal = Develop strategies to negotiate price adjustments Signup and view all the answers

Match the agent's roles with their activities:

Setting listing price = Based on competitive market analysis Assisting sellers = Help determine a realistic home price Evaluating market data = Analyze recent sale prices for comparables Resolving appraisal issues = Suggest adjustments based on value assessment Signup and view all the answers

Study Notes

Evaluating Property Value and Pricing

Agents help determine a seller's listing price using market data.
A CMA (Competitive Market Analysis) compares the subject property to recent sales or listings of similar properties. It's not a formal appraisal.
Value can be subjective (value in use) but market value (value in exchange) is what an informed buyer would pay. Price is what is actually paid, and cost is the initial construction and land cost.
Listing price is usually based on market value. The seller determines the listing price based on market information.

Types of Value

Value in use: The subjective value to the current owner.
Market Value (Value in exchange): The likely price for a fair sale.
Market Price: The actual amount paid for a property.
Cost: The initial investment in buying or building a property.

Evaluating Residential Property

Informed Buyers: Informed buyers don't overpay for a property.
Comparable Properties (Comps): Comps should closely resemble the subject property in location, features, and improvements.
Neighborhood Analysis:
- Location dramatically affects value.
- Consider homeownership percentage, vacant properties and lots, and conformity.
- Analyze changes to the area such as land use, streets, utilities, nuisances, reputation, proximity to transportation and business/shopping centers, schools, public services, and government influences.
- Look at the neighborhood's life cycle (growth, decline).
Site Analysis: Examine:
- Lot size and dimensions (width, length, frontage, and property frontage– for example, street frontage for commercial property or water frontage for residential property, measured in dollars per foot of frontage).
- Lot shape and topography.
- Potential for increasing value (e.g., combining lots – plottage).
- Property's location (view, proximity to desirable features).
Building Analysis: Analyze:
- Size (square footage), excluding garage and basement.
- Number of bedrooms and bathrooms (full, three-quarter, half).
- Basement (functional/finished).
- Air conditioning, energy efficiency, garage.
- Construction quality, age and condition, curb appeal.
- Design and layout.
- Design deficiencies.

Preparing a Competitive Market Analysis (CMA)

CMA software assists in gathering data and comparisons. Agents use software to help prepare CMAs. They input information about the subject property from a personal inspection.
Data Selection:
- Location: Neighborhoods, proximity to amenities, proximity to water, view, busy street, other positive/negative factors.
- Physical Characteristics: Size, style, design/layout, construction materials, and building condition.
- Transaction Dates: Ideally within 3-6 months; may be older if no other options exist.
- Transaction Terms: Cash equivalent, standard financing, nonstandard financing (may skew sales price).
- Conditions of sale: Comparable sale must have been under normal conditions (arm’s length transaction, etc.).
Agent specifies software search criteria, including transaction status, date range, size and number of bedrooms and bathrooms, geographic area, etc.
Agent may need to make adjustments to prices of comparables to account for differences between subject and comparables, or if the market is very active.

Problems with Appraisals and Low Appraisals

Appraisals might be lower than the agreed-upon sales price.
Possible Solutions:
- Seller price reduction
- Larger buyer down payment
- Negotiated compromise price
- Request appraisal reconsideration, offering support data like stronger comparables.
Agent should not tamper with appraisal or influence appraisal results inappropriately; further investigation may be needed regarding the factors that may have affected the appraisal.
Appraisal reconsideration is possible, with support from the agent. Appraisals can be appealed with support from the agent; providing support data like stronger comparables. Lender considerations, like asking a loan officer for additional insights into the appraiser's final value estimate, are beneficial.

Key Factors in Choosing Comparables

Proximity: Properties in the same/similar neighborhoods.
Similarities: Similar age, quality, condition, features.
Recent Sales: Ideally within 3-6 months.

Example Exercise 4.2 (Evaluating Comparables)

The exercise provided detailed property descriptions that are in the same neighborhood, with slightly different characteristics (age, lot size, number of rooms/baths, garage type).
The study notes use these properties to explain how similar features/characteristics should be taken into account and weighted into the CMA.
Foreclosure sales should not be used as comparables.

Example Exercise 4.3 (Coping with a Low Appraisal)

This exercise involves a seller and buyer who have agreed on a contract price, but the appraised value is lower.
A CMA is done to find information to support the agreed price.
Possible solutions involve negotiating a new sales price, getting the buyer to make a bigger down payment, seller financing arrangements, or requesting appraisal reconsideration.
Reconsideration requests need strong support from suitable comparables.

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Description

This quiz covers the key concepts of property value evaluation, including market analysis and pricing strategies. You'll learn about various types of value, such as market value and cost, and the role of informed buyers in pricing. Test your understanding of how real estate agents determine listing prices based on market data.