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MBA 590 Real Estate Analysis
! College of BusinessAlfaisal
UNIVERSITY
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Country Index
World Bank 3U.S. 3New York 6.1London 6.5Hong Kong 11.4Saudi Arabia - Public 14Saudi Arabia - Private 29
Home Ownership Multiple of Annual Income
From: Abdullah Al Shehri Source: 7th Annual Demographia International Housing Affordability Index
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Chapter 6
Market Research
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Market Research effective real estate market research is often a matter of
excluding the irrelevant.
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Market Research general to specific
zoom in specific to general
zoom out
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Write a storyWhat is the property? Who are the users?
Where are the users? What do they care about? Who are the competitors?
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GIS
Graphic Information System Data Maps
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Chapter 7
Sales Approach and
Cost Approach
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The 8-step Appraisal Process
Identify the Problem
Determine the Scope of Work
Collect Data and Describe Property
Perform Data Analysis
Determine Land Value
Apply Approaches to Estimate Market Value
Reconcile Indicated Values from the Approaches
Report Final Value Estimate
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Identify ProblemIdentify client and intended users of appraisal
• Identify the intended use of the appraisal
• Identify the purpose of the assignment (type of value)
• Identify the effective date of the valuation
• Identify the relevant characteristics of the property
• Identify any important assumptions or conditions of
the assignment
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Collect Data and Describe• Market area data
General characteristics of region, city, and neighborhood
!
• Subject property data
Site, building, and locational characteristics
!
• Comparable property data
Market information on comparable properties
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Perform Data AnalysisMarket analysis
Demand, supply, and marketability studies
!
• Highest and best use analysis
Highest and best use as though site is vacant
Highest and best use as currently improved
!
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Highest and Best Use(1) legally permissible,
(2) physically possible,
(3) financially feasible,
(4) maximally productive
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Legally Permissible
Physically Possible
Financially Feasible
Max
Highest and Best Use
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Apply Three Approachs
Sales Approach
Cost Approach
Income Approach
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Market Valuethe most probable price a property should
bring in a competitive and open market under
all conditions requisite to a fair sale, the buyer
and seller each acting prudently and
knowledgeably, and assuming the price is not
affected by undue stimulus.
!
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Market ValueImplicit in this definition is the
consummation of a sale as of a
specified date and the passing of title
from seller to buyer under conditions
whereby:
!
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Market Value -1
buyer and seller are typically motivated.
!
!
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Market Value - 2both parties are well informed or well advised, and acting in what they consider their own
best interests. !
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Market Value - 3a reasonable time is allowed for exposure in the open market.
!
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Market Value - 4payment is made in terms of
cash in U.S. dollars or in terms of financial arrangements
comparable thereto.
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Market Value - 5the price represents the normal consideration for the property sold unaffected by special or
creative financing or sales concessions granted by anyone
associated with the sale. .!
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Investment Valuevalue to an individual
not to the market in general .!
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Sales Approach
What is the market suggesting the subject
property is worth?
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Regression?
sample size is usually too small
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Comparables
inferior add superior deduct
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Location Map
Faisal Street
Kha
lid S
tree
t
Subject Property 12,000
1
Sale 1 1,000,000 8,000 SM
125.00 PSM Oct 14
2
Sale 2 800,000 8,000 SM
100.00 PSM Oct 13 3
Sale 3 2,000,000 24,000 SM 83.33 PSM
Oct 13
4
700,000 8,000 SM 87.50 PSM
Oct 14
5 800,000 12,000 SM 66.67 PSM
Oct 13
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Subject Property
Sale 1 Sale 2 Sale 3 Sale 4 Sale 5
Price in SAR 1,000,000 800,000 2,000,000 700,000 800,000
Size in SM 12,000 8,000 8,000 24,000 8,000 12,000
Price Per SM 125.00 100.00 83.33 87.50 66.67
Date of Sale Oct-14 Oct-14 Oct-13 Oct-13 Oct-14 Oct-13
Location Faisal Street
Faisal Street
Faisal Street
Faisal Street
Khalid Street
Khalid Street
Range 66.67 to 125.00
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Matched Pairs
Same expect for one factor
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Date of Sale 100 to 125 in 12 months
25% in 12 months around 2% per month
Subject Property
Sale 1 Sale 2 Sale 3 Sale 4 Sale 5
Price in SAR 1,000,000 800,000 2,000,000 700,000 800,000
Size in SM 12,000 8,000 8,000 24,000 8,000 12,000
Price Per SM 125.00 100.00 83.33 87.50 66.67
Date of Sale Oct-14 Oct-14 Oct-13 Oct-13 Oct-14 Oct-13
Location Faisal Street
Faisal Street
Faisal Street
Faisal Street
Khalid Street
Khalid Street
Adjustment for Date of Sale 0% 25% 25% 0% 25%
Adjusted Indication
125.00 125.00 104.16 87.50 83.34
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Adjustment for Date of Sale 0% 25% 25% 0% 25%
Adjusted Indication
125.00 125.00 104.16 87.50 83.34
Subject Property
Sale 1 Sale 2 Sale 3 Sale 4 Sale 5
Price in SAR 1,000,000 800,000 2,000,000 700,000 800,000
Size in SM 12,000 8,000 8,000 24,000 8,000 12,000
Price Per SM 125.00 100.00 83.33 87.50 66.67
Date of Sale Oct-14 Oct-14 Oct-13 Oct-13 Oct-14 Oct-13
Location Faisal Street
Faisal Street
Faisal Street
Faisal Street
Khalid Street
Khalid Street
Adjustment for Size -4% -4% +15% -4% 0%
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80
90
100
110
0 4000 8000 12000 16000 20000 24000
Slope = 83.33 -100.00 24000 - 8000
-0.00104 -16.67 16000 = =
Price = 108.33 -(0.00104 x size) 95.83 = 108.33 -(0.00104 x 12000)
95.83
100 to 96 = 4% down and 83.33 to 96 =15% up
-4% +15%
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Adjustment for Date of Sale 0% 25% 25% 0% 25%
Adjusted Indication
125.00 125.00 104.16 87.50 83.34
Adjustment for Size -4% -4% +15% -4% 0%
Subject Property
Sale 1 Sale 2 Sale 3 Sale 4 Sale 5
Price in SAR 1,000,000 800,000 2,000,000 700,000 800,000
Size in SM 12,000 8,000 8,000 24,000 8,000 12,000
Price Per SM 125.00 100.00 83.33 87.50 66.67
Date of Sale Oct-14 Oct-14 Oct-13 Oct-13 Oct-14 Oct-13
Location Faisal Street
Faisal Street
Faisal Street
Faisal Street
Khalid Street
Khalid Street
1,000,000 ÷ 700,000 = 1.43 Add 43%
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Subject Property
Sale 1 Sale 2 Sale 3 Sale 4 Sale 5
Price in SAR 1,000,000 800,000 2,000,000 700,000 800,000
Size in SM 12,000 8,000 8,000 24,000 8,000 12,000
Price Per SM 125.00 100.00 83.33 87.50 66.67
Date of Sale Oct-14 Oct-14 Oct-13 Oct-13 Oct-14 Oct-13
Location Faisal Street
Faisal Street
Faisal Street
Faisal Street
Khalid Street
Khalid Street
Adjustment for Date of Sale 0% 25% 25% 0% 25%
Adjusted Indication
125.00 125.00 104.16 87.50 83.34
Adjustment for Size -4% -4% +15% -4% 0%
Adjustment for Location 0% 0% 0% +43% +43%
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Subject Property
Sale 1 Sale 2 Sale 3 Sale 4 Sale 5
Price Per SM 125.00 100.00 83.33 87.50 66.67
Adjustment for Date of Sale 0% 25% 25% 0% 25%
Adjusted Indication 125.00 125.00 104.16 87.50 83.34
Adjustment for Size -4% -4% +15% -4% 0%
Adjustment for Location 0% 0% 0% +43% +43%
Net Adjustments -4% -4% 15% 39% 43%
Indication 120.00 120.00 119.79 121.63 119.17
Range 119.17 to 121.63Indication 120
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Size in SM 12,000
Rate Per SM 120
Indication 1,440,000
Sales Approach
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Location Map
Faisal Street
Kha
lid S
tree
t
Subject Property 12,000
1
Sale 1 1,000,000 8,000 SM
125.00 PSM Oct 14
2
800,000 8,000 SM
100.00 PSM Oct 13 3
2,000,000 24,000 SM 83.33 PSM
Oct 13
4
700,000 8,000 SM 87.50 PSM
Oct 14
5 800,000 12,000 SM 66.67 PSM
Oct 13
Indication 120 PSM 1,440,000
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Cost Approach
Cost to replace Land Value
Improvement Value
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Subject Property
Land 12,000 SM Building 5,000 SM
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Land Value
Sales Approach Other Approaches
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Improvement Value
Cost New Less: Depreciation
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Accrued Depreciation
Physical Deterioration Functional Obsolescence External Obsolescence
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Improvement Value
Economic Life Effective Age
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Improvement ValueEconomic Life = 40 years Effective Age = 10 years Age ÷ Life = Depreciation Age ÷ Life = 25% Remaining Economic Life 30 years
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Improvement Value
Cost New PSM = 2,000 Less Depreciation 25% Effective Cost PSM = 1,500
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Size Effective Rate
Indication % of Total
Land 12,000 120 1,440,000 16%
Building 5,000 1500 7,500,000 84%
Indication 8,940,000 100%
Cost Approach