APP_05 Instructor Materials.pdf

Data Collection and 5 Analysis Learning Objectives After completing this lesson, students should be able to… Identify the forces that influence value at the regional and community levels List common sources of reg...

Data Collection and 5 Analysis Learning Objectives After completing this lesson, students should be able to… Identify the forces that influence value at the regional and community levels List common sources of regional and community data Explain how immediate market areas and neighborhoods are defined Describe important types of neighborhood data List the most common sources of neighborhood data Identify at least five types of site data that must be collected List the seven different categories of building data Understand how to analyze data concerning comparable properties Use cost, income, and expense data Suggested Lesson Plan 1. Give students Exercise 5.1 to review the previous chapter, “Property Description and Ap- praisal Math.” 2. Provide a brief overview of Chapter 5, “Data Collection and Analysis,” and review the learning objectives for the chapter. © 2018 Rockwell Publishing  Real Estate Appraisal Instructor Materials 3. Present lesson content: Regional and Community Data – Use of regional and community data – Regional and community value indicators – Sources of regional and community data Market Area and Neighborhood Data – Defining neighborhood boundaries – Neighborhood value indicators – Sources of neighborhood data EXERCISE 5.2 What is a neighborhood? Site Data – Legal and tax data – Physical data – Site data on the URAR EXERCISE 5.3 Site data Building Data – General building data – Substructure data – Exterior data – Interior data – Equipment data – Energy efficiency data – Miscellaneous data Data Analysis – Comparable properties – Cost data – Income and expense data EXERCISE 5.4 Building data 4. End lesson with Chapter 5 Quiz. 2  Chapter 5: Data Collection and Analysis Chapter 5 Outline: Data Collection and Analysis I. Regional and Community Data A. Use of regional and community data 1. Helps appraiser identify particular characteristics that increase or decrease value 2. Helps appraiser identify patterns of value fluctuations and anticipate shifts in the economy B. Regional and community value indicators 1. Natural environment (climate, topography, potential hazards) 2. Economic characteristics (economic base, infrastructure, housing supply and de- mand) 3. Social attitudes (income level, percentage of homeownership, upkeep of properties) 4. Political factors (property taxes, zoning regulations, environmental legislation) C. Sources of regional and community data 1. City, county, and state public agencies 2. Federal government sources 3. Trade associations, such as Chamber of Commerce and multiple listing services II. Market Area and Neighborhood Data A. Immediate market area: the area from which an appraiser can choose reliable comparable properties B. Neighborhood: geographical area in which land uses are complementary and all proper- ties are influenced in a similar way by the forces affecting value 1. Neighborhood boundaries are often some type of physical feature, such as highways or waterways C. Neighborhood value indicators 1. Physical characteristics of neighborhood 2. Rate of growth 3. Percent of owner occupancy 4. Trend in property values (up, down, or stable) 5. Turnover in ownership 6. Average time between listing and sale 7. Percent of land devoted to different uses (single-family, multi-family, etc.) 8. Price range, age range, and size range of properties 9. Degree of maintenance of improvements 10. Access to key services and transportation routes 3  Real Estate Appraisal Instructor Materials D. Sources of neighborhood data 1. Government agency and trade association sources 2. Neighborhood review by appraiser EXERCISE 5.2 What is a neighborhood? III. Site Data A. Reasons for collecting site data 1. Highest and best use analysis 2. Data for certain valuation techniques (cost approach) 3. May be required as part of appraisal assignment (such as assessment) B. Legal and tax data C. Physical data 1. Site dimensions, including width (or frontage) and depth 2. Location (type of lot and access to lot) 3. Improvements (streets, alleys, utilities, driveways, parking, landscaping, fences) D. Site data portion of Uniform Residential Appraisal Report EXERCISE 5.3 Site data IV. Building Data A. General data (building size, number of stories, architectural style) B. Substructure data (foundation type, basement data, pest problems) C. Exterior data (roofing material, exterior wall covering, doors and windows) D. Interior data (floor, wall, and ceiling finishes, cabinetry and trim) E. Equipment and appliance data (electrical, plumbing, and HVAC systems) F. Energy efficiency data G. Miscellaneous data (attic, car storage, fireplace, deck or patio) H. Use of exterior-only inspection (drive-by appraisals) V. Data Analysis A. Comparable properties 1. Comps represent the kind of property that the subject property competes with in the same market 2. Appraiser must identify prices and terms of sale (including date of sale, financing, and sale conditions) B. Cost data C. Income and expense data EXERCISE 5.4 Building data 4  Chapter 5: Data Collection and Analysis Exercises EXERCISE 5.1 Review exercise To review Chapter 4, “Property Description and Appraisal Math,” read the following questions to students and have them jot their answers down on a piece of paper; discuss answers together. 1. Why is it inadequate to use a property’s street address to identify the property? 2. What are the three methods of land description? What method or methods would typically be used to describe rural property? What about property in a suburban subdivision? 3. What’s the area of a room that’s 20 feet long and 5 yards wide? If it has 12-foot ceilings, what’s the volume? 4. If a property’s annual net income is $75,000, how much would an investor who wants a 10% return be willing to pay for the property? Answers: 1. Property must be precisely identified in deeds and other legal documents and in appraisal reports. A street address isn’t specific enough. It wouldn’t enable a surveyor to locate the property’s exact boundaries. 2. The three methods of legal description are metes and bounds, rectangular survey, and lot and block. A rural property would typically be described using the metes and bounds method, the rectangular survey method, or a combination of the two. A lot and block description would be used for property in a subdivision. 3. For the area, convert the yards to feet (5 × 3 = 15), then multiply the length times the width: 20 × 15 = 300 square feet. For the volume, multiply the length times the width times the height: 20 × 15 × 12 = 3,600 cubic feet. 4. The direct capitalization formula is Income = Rate × Value. Here you know the Income ($75,000) and the Rate (10%) and need to find the Value, so switch the formula to Income ÷ Rate = Value. $75,000 ÷.10 = $750,000. 5  Real Estate Appraisal Instructor Materials EXERCISE 5.2 What is a neighborhood? Discussion Prompt: How is a neighborhood defined for appraisal purposes? What are some of the features or factors that can define a neighborhood’s boundar- ies? Consider some of the neighborhoods in your area; what determines their boundaries? Analysis: A neighborhood is a geographical area in which the properties share some degree of uniformity and are subject to the same forces that influence value. There may be more than one type of land use, but the uses are complementary (homes, schools, and places of worship, for example). Neighborhood boundaries may be defined, for example, by a physical feature (such as an arterial street or a body of water), a zoning classification, uniformity in the age or architectural style of buildings, or the economic status of residents. EXERCISE 5.3 Site data Match the correct term to each of the following descriptions. Legal description Physical data Frontage Width Depth Off-site improvements On-site improvements Plottage 1. An appraiser can obtain this by making copies of records in the county recorder’s office. 2. An appraiser obtains this information through a personal inspection of the subject property. 3. This is a measure of the dimension of the lot that is perpendicular to the street on which the site’s address is located. 4. This is a measure of the length of a property’s boundary where it adjoins a street or a body of water. 5. This consists of streets, alleys, and neighborhood utilities available to the subject property. 6. This includes improvements such as driveways, landscaping, and fences. 6  Chapter 5: Data Collection and Analysis Answers: 1. LEGAL DESCRIPTION. A property’s legal description may be found in documents at the county recorder’s office. 2. PHYSICAL DATA. An appraiser will obtain physical data (such as property bound- aries and contour) through a visit to the property. 3. DEPTH. A lot’s depth is the distance from the street on which the property’s ad- dress is located, to the back of the lot. 4. FRONTAGE. Frontage is the length of a property’s boundary along a street or a body of water. 5. OFF-SITE IMPROVEMENTS. Off-site improvements are improvements not actually on the property, such as the surrounding streets and sidewalks. 6. ON-SITE IMPROVEMENTS. On-site improvements include improvements like driveways and landscaping, as well as utilities actually connected to the site. EXERCISE 5.4 Building data Activity: Have students fill out a building data form like the one in the textbook for the house where they live, or for a friend or family member’s house. If they’re doing this in class and the form asks for information they don’t know, they can guess or estimate. 7  Real Estate Appraisal Instructor Materials Chapter 5 Quiz 1. Data about social, economic, and political fac- 6. The dimensions of a site include: tors that affect value are: A. height A. regional and community data B. elevation B. market and neighborhood data C. frontage C. site data D. position D. building data 7. For irregularly shaped lots, measurements of 2. An example of infrastructure would be: width and depth: A. the foundation of a house A. use the widest and longest part of the site B. interior finishes and trim B. are determined based on street frontage C. transportation networks C. do not include the space occupied by any D. a building’s air conditioning system buildings on the lot D. may be stated as averages 3. Regional and local laws and regulations relate to which aspect of regional and community 8. Which of the following would NOT be consid- data? ered a site improvement? A. Political factors A. Parking space B. Environmental factors B. Distance to neighborhood school C. Economic factors C. Fences D. Social factors D. Utility connections 4. Sources of published information for regional 9. The primary source for data about the subject and community data could include all of the property site is: following except: A. building blueprints A. multiple listing services B. public tax records B. the federal government C. personal inspection by the appraiser C. direct observation by the appraiser D. published sources of information D. county and city government agencies 10. The number of stories, architectural style, and 5. If the subject property competes with properties number of units in a building are: in other neighborhoods, the appraiser may need A. substructure data to: B. general building data A. change the neighborhood boundaries to C. equipment data include more comparables D. interior data B. make adjustments to the values of compa- rable properties to account for differences between neighborhoods C. organize data based on census tracts instead of neighborhoods D. choose comparable properties that have a different use from the subject property 8  Chapter 5: Data Collection and Analysis 11. The type and condition of roof should be noted because: A. roofs are almost never replaced during the life of a building B. roofing materials have little impact on value C. the cost of replacing a roof is substantial D. Both A and C 12. Appliances in the building are: A. never considered part of the appraisal B. included in the appraisal only for commer- cial property C. often considered if they are large or built in D. treated as part of the site data 13. Comparable properties should be as similar as possible to the subject property in order to: A. accurately reflect the subject property’s value B. represent the kind of property that the subject property competes with in the real estate market C. make it easier to find comparable properties to use in the appraisal D. Both A and B 14. Data about comparable properties can come from: A. multiple listing services B. interviews with parties to a transaction C. files on previous appraisals the appraiser has conducted D. All of the above 15. Building cost estimates for residential apprais- als are often based on: A. multiplying gross living area by an average cost per square foot B. adding up the reproduction cost for exterior and interior finishes C. adjusting the most recent sales price for inflation D. All of the above 9  Real Estate Appraisal Instructor Materials Answer Key 1. A. General information about social, eco- 9. C. Most physical site data are generated nomic, and political forces that affect by a personal inspection of the dimen- property values is regional and com- sions, location, and other features of munity data. the site. 2. C. Infrastructure means public improve- 10. B. The basic general information needed ments that support basic needs. about a building includes the size, Examples include transportation and number of units, number of stories, utilities such as power, water, and and architectural style. sewage. 11. C. Most roofs require replacement during 3. A. Regional and local laws and regula- the life of the building at substantial tions are political factors that affect cost. The appraiser should consider the property values. effect that the type and condition of the roof have on the property’s value. 4. C. Appraisers rely on many sources for published information, including 12. C. For residential property, appliances multiple listing services and various that are large or built in are often government organizations. However, included in the appraisal. This may the appraiser’s personal observations include items such as refrigerators, are by definition not published infor- dishwashers, ovens, ranges, and wash- mation. ers and dryers. 5. B. If the market area for the subject prop- 13. D. Comparable properties represent the erty includes other neighborhoods or subject property’s competition in the districts, it may be necessary to make market. In order to accurately reflect adjustments to the values of compa- the value of the subject property, they rable properties during an appraisal. should be as similar as possible. 6. C. Site dimensions include width, depth, 14. D. Secondary sources such as multiple and frontage. listing services provide much of the data on comparable properties, but 7. D. The width and depth of irregularly interviews and the appraiser’s files can shaped lots may be stated as averages. also be excellent sources of compa- rable property data. 8. B. Site improvements are features of the site that contribute to value. Distances 15 A. For most residential appraisals, build- to neighborhood amenities are not im- ing cost is estimated based on a simple provements, but they are important site calculation using the average cost per data to collect. square foot to build a house in the area. 10  Chapter 5: Data Collection and Analysis PowerPoint Thumbnails Use the following thumbnails of our PowerPoint presentation to make your lecture notes. Real Estate Appraisal Lesson 5: Data Collection and Analysis © 2018 Rockwell Publishing Data Collection and Analysis How the process works Data collection and analysis involves:  gathering data  selecting useful data  analyzing data © 2018 Rockwell Publishing Data Collection and Analysis Primary and secondary data Two ways to gather data:  Personally collect necessary information.  Obtain data from published sources of information. Primary data: Data generated directly by appraiser. Secondary data: Data from published sources. © 2018 Rockwell Publishing 11  Real Estate Appraisal Instructor Materials Data Collection and Analysis General and specific data General data: Information that relates to real estate values generally.  Includes socioeconomic trends, supply and demand data. Specific data: Information about particular property. © 2018 Rockwell Publishing Data Collection and Analysis Types of data Four categories of appraisal data:  regional and community data  market and neighborhood data  site data  data about buildings or improvements © 2018 Rockwell Publishing Data Collection and Analysis Regional and community data Most appraisers maintain files of regional and community data for their geographic areas. Data types:  natural environment  economic  social  political © 2018 Rockwell Publishing 12  Chapter 5: Data Collection and Analysis Types of Regional and Community Data Natural environment Data types:  climate  topography  natural resources  potential hazards © 2018 Rockwell Publishing Types of Regional and Community Data Economic characteristics Economic base: Activities, such as business and industry, that support people who live in area:  employment levels  cost of living  construction activity  interest rates  infrastructure – transportation, utilities © 2018 Rockwell Publishing Types of Regional and Community Data Social attitudes Social attitudes have an impact on:  housing supply and demand  size and composition of families  percentage of homeownership  upkeep of properties  level of community involvement © 2018 Rockwell Publishing 13  Real Estate Appraisal Instructor Materials Types of Regional and Community Data Political factors Includes regional/local laws and regulations:  property taxes  zoning and building codes  environmental legislation  available social programs  quality of public education © 2018 Rockwell Publishing Regional and Community Data Sources of information Some information gathered by direct observation. Government entities publish information:  Census Bureau  Dept. of Housing and Urban Development  Dept. of Labor State, county, and city agencies also useful. © 2018 Rockwell Publishing Summary Regional and Community Data – Economic base – Infrastructure – Supply and demand – Sources of information © 2018 Rockwell Publishing 14  Chapter 5: Data Collection and Analysis Market and Neighborhood Data Neighborhoods and districts Market area: Area from which appraiser may choose reliable comparable properties. Neighborhood: Geographic area in which forces affecting value influence all properties in same manner. District: Geographic area dedicated to one specific type of land use. © 2018 Rockwell Publishing Neighborhood Data Neighborhood boundaries May be physical features such as highways, railroads, bodies of water, or changes in elevation.  Zoning differences may also establish boundaries.  Sometimes, different forces affecting value may be only boundary. © 2018 Rockwell Publishing Neighborhood Data Types of data Important neighborhood data include:  neighborhood boundaries  physical characteristics  rate of growth (new construction)  percentage of owner occupancy  trend in property values  rate of change in ownership (turnover)  marketing time © 2018 Rockwell Publishing 15  Real Estate Appraisal Instructor Materials Neighborhood Data Types of data  percentage of land devoted to various uses (single-family, commercial)  level of maintenance of properties  occupant characteristics (employment, income, family size)  distance to employment, shopping  quality of schools, police, fire  negative value influences (crime, traffic) © 2018 Rockwell Publishing Market and Neighborhood Data Sources of information Sources:  local government agencies  trade associations  Census Bureau  appraiser’s own observations (neighborhood review) © 2018 Rockwell Publishing Summary Market and Neighborhood Data – Market area – Neighborhood – Neighborhood boundaries – District – Sources of information © 2018 Rockwell Publishing 16  Chapter 5: Data Collection and Analysis Site Data Site data: Specific data regarding subject property site (the land, not including buildings and/or improvements). Make sure legal description matches actual site dimensions.  Easements and encroachments should be noted. © 2018 Rockwell Publishing Site Data Appraisers may need to collect site data for:  highest and best use analysis  use in certain techniques (like cost approach)  certain types of assignments (like tax assessments) © 2018 Rockwell Publishing Site Data Site dimensions Width: Dimension of site parallel to street on which site address is located. Depth: Dimension of site perpendicular to street.  For irregularly shaped lots, state width and depth as averages. Frontage: Boundary of property where it adjoins street or body of water. © 2018 Rockwell Publishing 17  Real Estate Appraisal Instructor Materials Site Data Location Location of site within neighborhood is important.  Is site a corner lot?  Is site on a cul-de-sac?  What sort of access is there?  Is site close to schools and shops? © 2018 Rockwell Publishing Site Data Improvements Site improvements may include:  parking  landscaping  fences  utility connections  streets  sidewalks © 2018 Rockwell Publishing Summary Site Data – Site – Legal description – Width – Depth – Frontage – Improvements © 2018 Rockwell Publishing 18  Chapter 5: Data Collection and Analysis Building Data Building data used in identifying and analyzing comparable properties.  Also useful in estimating reproduction or replacement cost, and depreciation. Sources:  personal inspection  blueprints  multiple listing services © 2018 Rockwell Publishing Building Data Types of building data Data types:  general building data  substructure data  exterior data  interior data  equipment data  energy efficiency data © 2018 Rockwell Publishing Building Data General building data Basic building information:  size of structure  number of units/stories  architectural style  location of building on site  floor plan/general description of rooms  gross living area © 2018 Rockwell Publishing 19  Real Estate Appraisal Instructor Materials Building Data General building data Gross living area: Overall size of building, calculated by measuring the exterior walls.  Includes above-grade living space.  Not garage, attic, or basement. © 2018 Rockwell Publishing Building Data Substructure data Substructure: Building’s foundation and parts that are mostly below grade level. Common foundation types:  slab-on-grade  full basement  crawl space foundation © 2018 Rockwell Publishing Building Data Exterior data Appraisers need to collect information about:  roof and gutters  exterior siding/walls  trim  windows  doors © 2018 Rockwell Publishing 20  Chapter 5: Data Collection and Analysis Building Data Interior data Type and quality of interior finishes can have big impact on property value. Particular attention should be paid to:  bathroom/kitchen finishes  wall, ceiling, and floor coverings  cabinetry, interior doors, and trim © 2018 Rockwell Publishing Building Data Equipment and appliances Major equipment systems include:  electrical  plumbing  heating systems © 2018 Rockwell Publishing Building Data Equipment and appliances Appliances: refrigerators, dishwashers, ovens, ranges, and washers and dryers. Energy efficiency features: building insulation, weather-stripping, caulking, and plumbing insulation. © 2018 Rockwell Publishing 21  Real Estate Appraisal Instructor Materials Building Data Exterior-only inspections Exterior-only inspection (a.k.a. drive-by appraisal): No inspection of building’s interior. Appraiser gathers data online and visits property briefly to assess its condition and verify information.  Common before financial crisis, but not now.  All FHA and VA loans, and most higher- risk loans, require full inspection. © 2018 Rockwell Publishing Summary Building Data – Types of building data – Gross living area – Substructure – Equipment – Drive-by appraisal © 2018 Rockwell Publishing Data Analysis Data analysis is involved in all three appraisal methods: sales comparison approach, cost approach, and income approach. Comparable properties represent kind of property subject property is competing with.  Collect same information for comparables as for subject.  Must verify reliability of comparable data. © 2018 Rockwell Publishing 22  Chapter 5: Data Collection and Analysis Comparable Properties Important factors Appraisers must collect information about:  date of sale  financing terms  any conditions of sale  sales price © 2018 Rockwell Publishing Data Analysis Cost data In cost approach to value, cost data are needed to estimate replacement or reproduction cost of subject property. Value = Gross living area × Cost per square foot © 2018 Rockwell Publishing Data Analysis Income and expense data The income approach to value requires information such as:  terms of rental agreements and rates  vacancy rates  operating costs  real estate taxes  insurance costs  reserves for replacement © 2018 Rockwell Publishing 23  Real Estate Appraisal Instructor Materials Summary Data Analysis – Comparable properties – Terms of sale – Cost data – Income and expense data © 2018 Rockwell Publishing 24