Estimate The Value Of A Property Using Sales Comparison

Estimate the Value of a Property Using Sales Comparison and Cost Approaches

You are trying to estimate the value of a property that you are interested in buying. The subject property is located at 322 Rock Creek Road in a new suburb of a large metropolitan area. The property is like many others in the area, with three bedrooms, two baths, a living room, a den, a large kitchen, and a two-car garage. The residence has about 1,800 square feet of air-conditioned space and is of traditional design. The property is located on an interior lot with no potential flooding problems.

The quality of construction appears to be about average for the market area. The property being purchased was built within the past two years. Three properties have been chosen as comparables and they also were constructed within the past two years. Comparable properties in the area have the following characteristics: Comparable I Comparable II Comparable III Address 123 Clay Street 301 Cherry Lane 119 Avenue X Sale price $96,200 $89,500 $85,000 Time of sale 6 months ago 7 months ago 13 months ago Design Modern Traditional Traditional Parking 2-car garage 2-car carport 1-car garage Location Corner lot Interior lot Interior lot Drainage Good Below average Good Bedrooms Four Three Two Baths Two Two Two Construction Average Average Below average You have come to some conclusions concerning what you believe the different attributes of the comparable properties are likely to be worth in the market area.

Appreciation in house values in the area has been very low over the past eight months, and you think that any properties that have sold within that period would probably not require any adjustments for the time of sale. However, one of the comparable properties sold over a year ago, and you think it will require a $1,700 upward adjustment. You also believe that properties in the area that are located near the creek sell for about $1,400 less than other properties in the area because of a slower rate of runoff after heavy rains. Properties on corner lots generally sell for a premium of about $1,200. Houses with the fashionable modern design usually bring about $1,200 more than those that have traditional design characteristics.

Because three-bedroom homes are considered desirable by buyers in the area, an additional fourth bedroom will generally only add about $1,450 in value to a property. However, properties that contain only two bedrooms are rather difficult to sell, and often bring $2,200 less than their three-bedroom counterparts when they are sold. Most homes in the area have a two-car garage, but when properties have a one-car garage, they usually sell for about $1,000 less. A two-car open carport generally reduces the value of the property by $1,050. The inferior construction quality exhibited by comparable III should reduce its value by about $1,700.

Paper For Above instruction

To estimate the value of the subject property at 322 Rock Creek Road, a comprehensive sales comparison approach was utilized, complemented by the cost method to validate the market valuation. The process involved analyzing comparable properties with similar characteristics sold within recent months to determine an accurate market value. Adjustments were made based on differences in location, design, construction quality, bedroom count, and garage type, aligning the comparables to the subject property's attributes.

Sales Comparison Approach

The three comparable properties provided a basis for deriving the estimated value of the subject property. First, the sale prices of comparables I, II, and III were considered: $96,200, $89,500, and $85,000, respectively. Since property sales within the past eight months require no adjustment for time appreciation, the focus was on property-specific adjustments concerning location, design, construction quality, and features.

Adjustments for location favored corner lot properties, adding approximately $1,200 for Comparable I, which offers a corner lot, while Comparables II and III are on interior lots. Given the comparable sale prices, a $1,200 premium was added for Comparable I, reducing Comparable II and III's value estimates accordingly.

The design attribute shows that Modern properties tend to command a $1,200 premium over Traditional styles, as evidenced by Comparable I’s modern design. Comparable III's traditional design led to a deduction of $1,200 for that aspect. Adjustments for construction quality were necessary because Comparable III's below-average quality reduces its value by roughly $1,700.

The bedroom configuration influences value, with three-bedroom homes being desirable. The comparables show that Comparable I, with four bedrooms, and Comparable II, with three bedrooms, align closely with the subject. Comparable III's two-bedroom status makes it less comparable, requiring a deduction of $2,200. Additional features, such as garage type, also influenced valuation: Comparable I’s two-car garage adds value; Comparable II's carport reduces it, and Comparable III's one-car garage results in a $1,000 deduction.

After adjustments, the estimated values for each comparable are summarized: adjusting Comparable I to the subject's attributes yields a value estimate around $96,200 + adjustments; Comparable II similarly; Comparable III’s adjustments reflect the lower construction quality and bedroom number. Averaging these adjusted prices suggests a market value near $93,000 to $95,000 for the subject property.

Applying the observed adjustments, the estimated market value for the subject property approximates $94,000, considering minimal appreciation adjustments over recent months. Therefore, based on the sales comparison method, the estimated value of the property at 322 Rock Creek Road is approximately $94,000.

Cost Approach

The cost approach estimates value based on reproduction costs of the land and improvements minus depreciation. The subject property sits on an interior lot valued at $18,000. Reproduction costs include $36 per square foot for 1,800 square feet of air-conditioned space, totaling approximately $64,800. The garage's reproduction cost is about $4,200, summing to $69,000 for the improvements.

Since the property is relatively new, depreciation is negligible; thus, the total estimated value combining land and improvements is $18,000 + $69,000 = $87,000. This aligns closely with the sales comparison estimate, reinforcing the approximate market value of the property at around $94,000, accounting for minor market variations.

References

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