# 2 Development of SMV Using Sales Direct Comparison Approach.pdf

28 de May de 2023
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### 2 Development of SMV Using Sales Direct Comparison Approach.pdf

• 1. Schedule of Market Values (SMV) • Provides the matrix and other parameters used in the appraisal and assessment of real properties • Lists of locations setting out the base unit values. • Shows various influences to value. • Shows the current market value of properties.
• 2. APPRAISAL OF LANDS The concept of highest and best use. The PVS defines highest and best use as “The most probable use of a property which is Physically possible Appropriately justified Legally permissible Financially feasible, and which results in the highest value of the property being valued”
• 3. Development of SMV for Residential Lands (and Commercial and Industrial Lands)
• 4. APPRAISAL OF LANDS 1. Establish Benchmark Lot Values • Typical parcel that serves as the model • Possess characteristics common to the majority of properties • Ready reference against which to check sales or values of other properties
• 5. APPRAISAL OF LANDS 2. Random Selection of Parcels 1. Simple Random Sampling • Lottery – needs complete listing of properties. Easy for small populations but relatively complicated and time- consuming for large populations. • Generation of Random Numbers/digits – better and more efficient method for selecting a simple random sample. Computers and even calculators can be used to generate random digits, however a complete listing the properties is needed in this type of random selection.
• 6. 2. Systematic Sampling – samples are randomly chosen following certain rules set by the researchers. This involves choosing the Kth number of the properties, with k=N/n, but there should be a random start. Example: Choose a sample size of 10 from a sub-market area of 500 properties, using a systematic random sampling., N=500;n=1 Step 1. Determine k (period/interval) ; 500/10= 50, using systematic random sampling. Step 2. Put the random start at 15. Step 3. Include in the samples of the following: 15, 65, 115, 265, 315,365, 415 and 465. APPRAISAL OF LANDS
• 7. 3. Stratified Random Sampling. • Use Strata (Kind, Classification) 4. Cluster Sampling • Sub-Market Areas APPRAISAL OF LANDS
• 8. Cases in the Development of SMV 1. Sales/Direct Comparison Approach 2. Adjustments for Time. 3. Income Capitalization Approach 4. Land Residual Technique
• 9. Case 1. Development of SMV Using Sales/Direct Comparison Approach
• 10. Case 1. Development of SMV Using Sales/Direct Comparison Approach Sub-Market Area 1 = Residential, 850 Land RPUs 5%=42, valid data=32 Manner of selection = Systematic. DETERMINE ADJUSTMENT FACTORS. Sale MV Area UV Rounded UV 1 864,742 240 3,603 3,600 2 137,430 90 1,527 1,500 3 507,840 184 2,760 2,800 4 224,757 113 1,989 2,000 5 683,250 250 2,733 2,700 6 720,300 210 3,430 3,400 7 642,000 214 3,000 3,000 8 1,497,705 313 4,020 4,000 9 600,000 200 3,000 3,000 10 589,615 193 3,055 3,100 11 550,000 180 3,055 3,100 12 495,000 180 2,750 2,800 13 694,760 220 3,158 3,200 14 672,280 196 3,430 3,400 15 589,854 222 2,657 2,700 16 777,000 222 3,500 3,500 Sale MV Area UV Rounded UV 17 1,587,200 320 4,960 5,000 18 282,285 123 2,295 2,300 19 414,492 156 2,657 2,700 20 401,751 147 2,733 2,700 21 725,000 200 3,625 3,600 22 500,000 200 2,500 2,500 23 620,000 200 3,100 3,100 24 650,548 206 3,158 3,200 25 425,000 170 2,500 2,500 26 666,500 215 3,100 3,100 27 234,500 125 1,876 1,900 28 600,000 180 3,333 3,300 29 599,940 180 3,333 3,300 30 700,000 200 3,500 3,500 31 799,866 222 3,603 3,600 32 1,184,900 289 4,100 4,100
• 11. Case 1. Development of SMV Using Sales/Direct Comparison Approach Identify Base Lot, and uncommon lots: Sale Sale Price Land Area Unit Value Description Comment 9 600,000 200 3,300 Flat land, inside lot, no view or other factor May establish unit value 11 550,000 180 3,055 Flat land, inside lot, no view or other factor May establish unit value (Sale 9) 22 500,000 200 2,500 Inside lot, land drops from road 1.5 meters 17% drop in price 23 620,000 200 3,100 Almost flat land, slightly slopes down from road May establish unit value (Sale 9) 28 600,000 180 3,333 Flat lot, no view, located on good corner Corner lot achieved 11% addtl value
• 12. Case 1. Development of SMV Using Sales/Direct Comparison Approach Determine Adjustment Factors: Using Rounded value of Sales 9, 11 and 23 as the benchmark lot = P 3,000: % Adjustment low land = (UV sale 22-UV sale9)/UV Sale 22 x 100% = (2,500-3000)/3,000 x 100% = -17% % Corner Lot = (UV sale 28-UV sale 9)/UV Sale 28 = (3,333-3000)/3,000 x 100% = +11%
• 13. Case 1. Development of SMV Using Sales/Direct Comparison Approach Sale Sale Price Land Area Unit Value Description Comment 21 725,000 200 3,625 On higher part of subdivision, slight slope from road, and has very good view. Higher lot with view adds 20% value 12 495,000 180 2,750 Flat corner lot but near to old railway line and squatters. Shows reduction in price 17.5% from standard corner price. 30 700,000 200 3,500 Good flat piece of land on main road Main road location indicates 16% increase over base price
• 14. Case 1. Development of SMV Using Sales/Direct Comparison Approach Determine Adjustment Factors: % Adjustment low land = (3,625-3000)/3,000 x 100% = +20% % Blighted lot (squatters) with corner influence = (3,000 x 111%) = 3,333 (with Corner Influence) = (2,750 – 3,333)/3,333 x 100% = -17.5% %Effect to Main Road = (UV sale 30-UVsale 9)/UV Sale 30 = (3,500-3000)/3,000 x 100% = +16%
• 15. Case 1. Development of SMV Using Sales/Direct Comparison Approach Determine Adjustment Factors: • Base unit value = Php3,000/m2 (Sales 9,11,23.) • Sloping down = deduct 16% (Sale 22) • Corner lots = add 11% (Sale 28) • With a view = add 20% (Sale 21) • Blighted Status (Squatters) = deduct 17% (Sale 12) • Lots along main road – 16% higher (Sale 30)
• 16. Using all the Sales Data, formulate the Schedule of Market Values
• 17. Case 1. Development of SMV Using Sales/Direct Comparison Approach Sub-Market Area 1 = Residential, 850 Land RPUs 5%=42, valid data=32 Manner of selection = Systematic Sampling. Sale MV Area UV Rounded UV 1 864,742 240 3,603 3,600 2 137,430 90 1,527 1,500 3 507,840 184 2,760 2,800 4 224,757 113 1,989 2,000 5 683,250 250 2,733 2,700 6 720,300 210 3,430 3,400 7 642,000 214 3,000 3,000 8 1,497,705 313 4,020 4,000 9 600,000 200 3,000 3,000 10 589,615 193 3,055 3,100 11 550,000 180 3,055 3,100 12 495,000 180 2,750 2,800 13 694,760 220 3,158 3,200 14 672,280 196 3,430 3,400 15 589,854 222 2,657 2,700 16 777,000 222 3,500 3,500 Sale MV Area UV Rounded UV 17 1,587,200 320 4,960 5,000 18 282,285 123 2,295 2,300 19 414,492 156 2,657 2,700 20 401,751 147 2,733 2,700 21 725,000 200 3,625 3,600 22 500,000 200 2,500 2,500 23 620,000 200 3,100 3,100 24 650,548 206 3,158 3,200 25 425,000 170 2,500 2,500 26 666,500 215 3,100 3,100 27 234,500 125 1,876 1,900 28 600,000 180 3,333 3,300 29 599,940 180 3,333 3,300 30 700,000 200 3,500 3,500 31 799,866 222 3,603 3,600 32 1,184,900 289 4,100 4,100
• 18. Case 1. Development of SMV Using Sales/Direct Comparison Approach Sub-Market Area 1 = Residential, 850 Land RPUs 5%=42, valid data=32 Manner of selection = Systematic Sampling. Sale Area UV Rounded UV Int 2 90 1,527 1,500 27 125 1,876 1,900 21% 4 113 1,989 2,000 5% 18 123 2,295 2,300 13% 22 200 2,500 2,500 8% 25 170 2,500 2,500 0% 5 250 2,733 2,700 7% 15 222 2,657 2,700 0% 19 156 2,657 2,700 0% 20 147 2,733 2,700 0% 3 184 2,760 2,800 4% 12 180 2,750 2,800 0% 7 214 3,000 3,000 7% 9 200 3,000 3,000 0% 10 193 3,055 3,100 3% 11 180 3,055 3,100 0% Sale Area UV Rounded UV Int 23 200 3,100 3,100 0% 26 215 3,100 3,100 0% 13 220 3,158 3,200 3% 24 206 3,158 3,200 0% 28 180 3,333 3,300 3% 29 180 3,333 3,300 0% 6 210 3,430 3,400 3% 14 196 3,430 3,400 0% 16 222 3,500 3,500 3% 30 200 3,500 3,500 0% 1 240 3,603 3,600 3% 21 200 3,625 3,600 0% 31 222 3,603 3,600 0% 8 313 4,020 4,000 10% 32 289 4,100 4,100 2% 17 320 4,960 5,000 18%
• 19. Case 1. Development of SMV Using Sales/Direct Comparison Approach Group the values into ranges with an interval of ± 5% from midpoint a. C1 = 1,500 (set MP) b. B1 = C1 x (100%-5%) =1,425 c. D1 = C1 x (100%+5%)-1 = 1,574 d. B2 = D1 + 1 = 1,575 e. C2 = B2 x (100%+5%) = 1,700 (Rnd) f. D2 = C2 x (100%+5%)-1 = 1784 and so on… E = number of UV occurring in the range A B C D E Range Low 5% Mid High 5% Freq 1 1,425 1,500 1,574 1 2 1,575 1,700 1,784 0 3 1,785 1,900 1,994 1 4 1,995 2,100 2,204 1 5 2,205 2,300 2,414 1 6 2,415 2,500 2,624 2 7 2,625 2,800 2,939 6 8 2,940 3,100 3,254 8 9 3,255 3,400 3,569 6 10 3,570 3,700 3,884 3 11 3,885 4,100 4,304 2 12 4,305 4,500 4,724 0 13 4,725 5,000 5,249 1
• 20. Case 1. Development of SMV Using Sales/Direct Comparison Approach Limit the set of ranges by collapsing few occurrences. Range Mid Freq 1 1,500 1 2 1,700 0 3 1,900 1 4 2,100 1 5 2,300 1 6 2,500 2 7 2,800 6 8 3,100 8 9 3,400 6 10 3,700 3 11 4,100 2 12 4,500 0 13 5,000 1 Due to too many ranges, collapse Ranges 1 & 2, 3 to 5 and 11 to 13 To collapse, compute the average of the mid values then round-off Range Low Mid High 1 1,425 1,600 1,784 2 1,785 2,100 2,414 3 2,415 2,500 2,624 4 2,625 2,800 2,939 5 2,940 3,100 3,254 6 3,255 3,400 3,569 7 3,570 3,700 3,884 8 3,885 4,500 5,249
• 21. Case 1. Development of SMV Using Sales/Direct Comparison Approach Sub Class MV R1 4,500 R2 3,700 R3 3,400 R4 3,100 R5 2,800 R6 2,500 R7 2,100 R8 1,600 Sort the ranges from highest to lowest value. Label the corresponding sub- class. Warning: Care should be taken in collapsing ranges, the interval between a midpoint increases thereby inappropriately overvalue or undervalue properties.
• 22. Case 1. Development of SMV Using Sales/Direct Comparison Approach Criteria for Sub-Classification: R1 Along main road Along interior road with view Relatively flat …. R2 Along interior roads No view Relatively flat …. R3 ….
• 23. Case 1. Development of SMV Using Sales/Direct Comparison Approach Adjustment Factors: Corner Influence = +11% Sunken Lots less than 1.5m = 0% (No adjustment) Sunken lots at 1.5m or more = -16% Blighted Status (presence of squatters) = -17%
• 24. Case 1. Development of SMV Using Sales/Direct Comparison Approach Participants Exercise: Sale Sale Price Land Area Unit Value Description Comment 9 405,000 180 Flat lot with road right of way, no view May establish unit value. 10 450,000 200 Flat lot farthest from the main road slightly sloping May establish unit value Given two more sales, determine the unit values, Adjustment factors, criteria for sub-classification and Make corresponding adjustments to the SMV.
• 25. Case 3. Development of SMV Using Income Capitalization Approach
• 26. Case 3. Development of SMV Using Income Capitalization Approach Ground Rent – Rent for vacant land. -lower capitalization rate due to durability of the lot Caution over: Short term Ground Rent – Rent for convenience Long term Ground Rent – if has no use for the immediate future.
• 27. Given two more sales, determine the unit values, Adjustment factors, criteria for sub-classification and Make corresponding adjustments to the SMV. Case 3. Development of SMV Using Income Capitalization Approach 1 10m x2om 200 5,000 Flat land, inside lot, no view or other factor 2 9mx20m 180 4,600 Flat land, inside lot, no view or other factor 3 10m x 20m 200 4,500 Inside lot, land drops from road by 1.5 meters (i.e. slopes down) 4 10m x 20m 200 5,000 Almost flat land, sight fall from road (slope down) 5 9m x 20m 180 5,300 Flat lot, no view, located on good corner. 6 10m x 20m 200 7,500 On higher part of subdivision, has slight slope (fall) from road, and has very good view. 7 9m x 20m 180 3,800 Flat corner lot but near to old railway line and squatters. 8 10m x 20m 200 6,000 Good flat piece of land
• 28. Formula: V = I / Cr Case 3. Development of SMV Using Income Capitalization Approach Where: V = Value I = Net Income CR = Capitalization Rate CR = I / V x 100%
• 29. Case 3. Development of SMV Using Income Capitalization Approach Participants Exercise: Ppty Area M Value from TD Net Annual Rent Cap Rate Utilization a b c d e=d/c f A 657 300,000 96,000 Whole Area B 200 650,000 60,000 Whole Area C 287 1,700,000 144,000 Only ½ utilized, rest idle D 1,150 400,000 45,000 Plant Propagation Average Capitalization Rate Determine valid data, estimate the CR:
• 30. Specific and General Factors as a basis for Criteria and Adjustment Factors Do: • Match pair and determine their difference. Example: Similar lots, one with view, the other without • Determine common differences that may serve as a criteria or adjustment factor. • Minor variation are ignored and individual appraisal is done for uncommon factors. Note: • Adjustment factors are peculiar to a property. • Criteria affects a number of properties (Sub- Classification)
• 31. Case 3. Development of SMV Using Income Capitalization Approach Estimate the CR from known valid sales and rentals. Sale Area Market Value Net Annual Rent Capitalization Rate a b c d e=d/c A 400 1,100,000 100,000 9.09% B 200 650,000 68,000 10.46% C 230 700,000 65,000 9.29% D 150 400,000 45,000 11.25% Average Capitalization Rate 10.02% say 10%
• 32. Case 3. Development of SMV Using Income Capitalization Approach Lot (a) Land Area (b) Net Mo. Rent (c) CR % (d) Market Value (e) UV w/ Inf (f) Influences (g) Adj. to UV (Inf) (h) Unit Value without influence (i) Rnded Unit Value (j) 1 200 5,000 10 600,000 3,000 Flat inside lot, no other factor 0% 3,000 3,000 2 180 4,600 10 552,000 3,067 Flat, inside lot, no other factor 0% 3,067 3,000 3 200 4,500 10 540,000 2,700 Inside lot, drops to 1.5m -17% 3,159 3,000 4 200 5,000 10 600,000 3,000 Almost flat, slight slope 0% 3,000 3,000 5 180 5,300 10 636,000 3,533 Flat, no view, good corner. +11% 3,145 3,000 6 200 7,500 10 900,000 4,500 High location, slight slope very good view +20% 3,600 3,500 7 180 3,800 10 456,000 2,533 Flat, corner lot, near old railway line and squatters. -17% 2,964 3,000 8 200 6,000 10 720,000 3,600 Good flat land on main road. 0% 3,600 3,500 e = (c)12/d f = e/b i = f(100%-h)
• 33. Schedule of Market Values Sub Classification Unit Value R1 3,500 R2 3,000 R3 2,500 Case 3. Development of SMV Using Income Capitalization Approach
• 34. Case 3. Development of SMV Using Income Capitalization Approach Criteria for Sub-Classification: R1 Along main road Along interior road with view Relatively flat …. R2 Along interior roads No view Relatively flat …. R3 ….
• 35. Case 3. Development of SMV Using Income Capitalization Approach Adjustment Factors: Corner Influence = +11% Sunken Lots less than 1.5m = 0% (No adjustment) Sunken lots at 1.5m or more = -16% Blighted Status (presence of squatters) = -17%
• 36. Case 3. Development of SMV Using Income Capitalization Approach Note: Where there are no rental data specific only to the land, identify similar lands with improvements which rental adheres more to the land rather than its improvement. Example: • Car Wash • Parking lots • Display areas
• 37. Case 4. Development of SMV Using Land Residential Technique Given: Parcel 1 Land Area = 200 Total Building Area (2s)= 180m2 Building Age = New Selling Price = Php 1.85 million With Block fences = 60 1m Paving = 83 m2 Conditions: Lands are similarly situated. Buildings are similarly constructed. Paving = Php 800 / m2 Determine the land unit value of Parcel 1. Parcel 2 Land Area = 180m2 (9m x 20m) Unit Value = Php 3,000/m2 Building Age = 5 years old Depreciation Rate = 5.5% Total Building Area (2s)= 140m2 Selling Price = Php 1.45 million With Block fences = Php 1,200/1m
• 38. Case 4. Development of SMV Using Land Residential Technique Solution: Determine land value and building value of Parcel 2. Land Value = 180m2 x Php 3,000/m2 = Php 540,000 Block Fences = Perimeter x Php 1,200/ 1m = 58 1m x Php 1,200/1m = Php 69,600 say Php 70,000 Depreciated Building Value = 1,450,000 – 540,000-70,000 = Php 840,000 Building Value New = Php 840,000 / (1.00-.055) = Php 888,889 Building Unit Value = Php 888,889/140m2 = Php 6,350/m2 = Php 6,500/m2
• 39. Case 4. Development of SMV Using Land Residential Technique Apply the unit value of building to parcel 1: Value of Building = 180m2 x Php 6,500/m2 = Php 1,170,000 Value of Fence = 60 1m x Php 1,200/1m = 72,000 Value of Pavement = 83 m2 x Php 800/m2 = Php 66,400 Value of Land (Parcel 1) = 1,850,000 – 1,170,000 – 72,000 – 66,400 = Php 541,600 Unit Value of Land = Php 541,600/200m2 = Php 2,708/m2 = say Php 3,000/m2 By using the same residual technique in extracting the value of other lands, a schedule of market value could be developed. Again the criteria are determined by the conditions of the land while the adjustment factors are de determined by the physical characteristics of land.