6 project management realistic scheduling and accurate estimating
Estimating Realistic Marketing Prices
description
Transcript of Estimating Realistic Marketing Prices
Estimating Realistic Marketing PricesEstimating Realistic Marketing Prices
Put properties into the context of current markets
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ObjectivesObjectives
Read and construct credible analyses of market transactions to justify price
Know how to adjust sales to a subject Describe major agricultural activities Understand estimating value by replacement
cost Examine results of different estimates to derive
a value
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Analysis of ComparablesAnalysis of Comparables
Continuous information collection Information clarifies possibilities Property variation limits use of raw
sales information Rigorous analysis yields real
knowledge
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Systematic Sales AnalysisSystematic Sales Analysis
Identify value determining features Specify measurable units for
comparisonper acreper animal unitper farm per ranch
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ExampleExample
High percentage of Class I soils Versus mostly Class III soils Class I increases price per acre
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Adjustment ProcessAdjustment Process
Simulates market of identical properties just like the subject
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Animal Unit (AU)Animal Unit (AU)
Production versus space Focus on forage production Composition varies greatly with
geographic variations Technology varies greatly as well
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Animal Unit Month (AUM)Animal Unit Month (AUM)
Soil surveys often provide estimates AUM is 1/12th of AU Six AUMs is 1/2 of AU Acres per AU = 12 / AUM per acre Six AUMs per acre = 2 acres per AU
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Comparable SalesComparable Sales
Ideal — Array of recent sales that are identical to the subject
Reality — Substantial variation, often older sales
Correct for differences (adjust)
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REMEMBERREMEMBER
Always adjust the comparables to Always adjust the comparables to the subject!the subject!
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Direction of AdjustmentDirection of Adjustment
Subject is superior — adjustment is added
Subject is inferior — adjustment is subtracted
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Information GatheredInformation Gathered
Property rights conveyed Financing terms Date of Sale Location Legal description Sale price
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Information GatheredInformation Gathered
Volume/page Grantor Grantee Acreage Selling agent
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Information GatheredInformation Gathered
Productivity information Descriptions of improvements Assessment information All special conditions Confirmations of buyer and seller
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Sources of Sales Sources of Sales
Mandatory disclosureinformation must be analyzedconfirmation still required
No disclosure real estate agentsbankerslawyersetc.
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Sales ComparisonSales Comparison
Grid ensures systematic approach Focus on important differences Cases by case judgment about which
items to include
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First Adjustments First Adjustments
Property rights Financial terms Market trends
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Remaining AdjustmentsRemaining Adjustments
Location Physical Economic Use Non-real estate items
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Adjusted PriceAdjusted Price
Basis forComparison Adjustments
1 Sale price $XXX,XXX2 Property rights +- $X,XXX3 Adjusted price $XXX,XXX4 Financial terms +- $X,XXX5 Adjusted price $XXX,XXX6 +- $X,XXX7 Adjusted price $XXX,XXX8 Location +- $X,XXX9 Physical +- $X,XXX10 Economic +- $X,XXX11 Use +- $X,XXX12 Non-real estate items +- $X,XXX
13 Final adjusted sale price $YYY,YYY14 Sale price per acre/AU $Y,YYY
Market trends
Sales Comparison Adjustments
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First Adjustments First Adjustments
Property rightsmineralseasements
Financial termsfavorable rate, etc.
Market trends time
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Adjustments Adjustments
Location Physical
size soilstopographyetc.
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Remaining AdjustmentsRemaining Adjustments
Economiccrop baselease provisionsetc.
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Remaining AdjustmentsRemaining Adjustments
Non-real estate itemsequipment includedgrowing crop etc.
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Example AdjustmentExample Adjustment
Basis for Market based
Comparison adjustment Adjustments1 Sale price 475,800$ 2 Property rights mineral rights 2% 9,516 3 Adjusted price 485,316$ 4 Financial terms favorable rate -5% (24,266) 5 Adjusted price 461,050$ 6 prices increase 5% 23,053 7 Adjusted price 484,103$ 8 Location inferior 2% 9,682 9 Physical (size) larger 1% 4,841 10 Economic inferior lease 3% 14,523 11 Non-real estate items crop included -2% (9,682)
12 Final adjusted sale price 503,467$ 1314 Sale price per acre (rounded) 588 acres 856$
Sales Comparison Adjustments
Market trends
Condition
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ExampleExample
Half of minerals reserved Favorable financial terms Market upward trend Inferior location Large property Inferior lease Crop included
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AdjustmentsAdjustments
Percentage Dollar Quality-based Objective criteria
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AdjustmentsAdjustments
Quality-basedexperiencerules of thumb
Objective criteria statistical analysiscostincome capitalization
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ExerciseExerciseBasis for Market based
Comparison adjustment Adjustments
Sale 11 Sale size and price 588 acres 475,800$ 2 Property rights mineral rights 2% 9,516 3 Adjusted price 485,316$ 4 Financial terms favorable rate -5% (24,266) 5 Adjusted price 461,050$ 6 prices increase 5% 23,053 7 Adjusted price 484,103$ 8 Location inferior 2% 9,682 9 Physical (size) larger -1% (4,841) 10 Economic inferior lease 3% 14,523 11 Non-real estate items crop included -2% (9,682)
12 Final adjusted sale price 493,785$
13 Sale price per acre/AU (rounded) 840$ 14 Total gross adjustments 95,563$ 15 Gross adjustment as percent of sale price 20.1%16 Total net adjustments 17,985$ 17 Net adjustment as percent of sale price 3.8%
Condition
Market trends
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ExerciseExerciseMarket based
Condition adjustment Adjustments
Sale 2650 acres 500,000$
fee simple 0% - 500,000$
market terms 0% - 500,000$
prices increase 3% 15,000 515,000$
inferior 5% 25,750 larger -2% (10,300) comparable 0% - implement included -1% (5,150)
525,300$
808$ 56,200$ 11.2%
25,300$ 5.1%
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ExerciseExerciseMarket based
Condition adjustment
Sale 3475 acres 448,500$
fee simple 0% - 448,500$
market terms 0% - 448,500$
comparable 0% - 448,500$
superior -10% (44,850) smaller -5% (22,425) comparable 0% - inferior crop base 5% 22,425
403,650$
850$ 89,700$ 20.0%
(44,850)$ -10.0%
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Irrigated CroplandIrrigated Cropland
Land Irrigation systems Drainage systems
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Irrigated CroplandIrrigated Cropland Land classes Surface topography Irrigation system Water rights Water quality Drainage systems Crop base Etc.
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Irrigated CroplandIrrigated Cropland
Soils determine ability to use water Topography important for flow and
drainage Water rights establish quantity and
quality of water
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Irrigated CroplandIrrigated Cropland
Surface water rightsprior appropriationriparian
Groundwater rightsprior appropriationabsolute ownership
Water marketing
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DrainageDrainage
Needed for tight, ponding soil Ditch systems Tile systems
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Water MeasuresWater Measures
Acre foot 43,560.2614 cubic feet 325,853.3837 gallons 12 cubic feet per second in 1 hour
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Livestock OperationsLivestock Operations
Soils Topography Types of forage and timing Water availability Estimated carrying capacity Noxious plants Improvements Recreational amenities
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Livestock OperationsLivestock Operations
Fee owned land Government leased land
federalstate
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Horticultural Horticultural
Fruits Berries Nuts Grapes Trees Flowers
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Horticultural Horticultural
Soils Development stage Irrigation (availability and adequacy) Varieties and rootstock Quality of product Climate (frost protection, wind patterns, etc.)
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Horticultural Horticultural
Pollination agents (bees, etc.) Pest control Improvements Local processing and marketing facilities Number of similar operations
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Horticultural Horticultural
Life stagesdevelopment (limited or no production)maturity (full production)decline (limited production, quality limited)redevelopment
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Timberland Timberland
Stumpage (value of timber) Plus land Industrial style operation
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Timberland Timberland
Soils Topography Type of timber Volume of timber Stage of timber growth Health of timber Location of mill
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Timber HarvestTimber Harvest
Critical factorsterrain (slopes, creeks, etc.)forest densitydefective treesmill nearby
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Timber CruseTimber Cruse Sampling of forest to establish volume of merchantable timber Measures
board feetdbh — diameter at breast height
Characteristics of trees Numbers of trees Normally requires consulting forester
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Stumpage ValueStumpage Value
Often years in future Frequently little income prior to
harvest
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DairiesDairies
Industrial style process Complicated improvements and mechanical systems
feedmilkingmilk storagesanitation
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DairiesDairies
Improvements important to valuemilking parlorsloafing lots feed storagebarnshouses (for employees)etc.
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Farm and Ranch ImprovementsFarm and Ranch Improvements
Depreciated cost Plus land value Building contribution often less than
construction cost even when new
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Farm and Ranch ImprovementsFarm and Ranch Improvements
Land valued by sales comparison Improvements valued by estimated
cost new less depreciation
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Farm and Ranch ImprovementsFarm and Ranch Improvements
Cost newreproduction cost — exact replicareplacement cost — equivalent utility
with modern materials and workmanship
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Cost EstimatesCost Estimates
Marshall Valuation Servicehttp://www.marshallswift.com/index.asp
Costs adjusted to current month and for location
Index for updating or backdating costs
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Depreciation EstimatesDepreciation Estimates
Loss in value from all causesphysical deterioration functional obsolescence external obsolescence
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Physical DeteriorationPhysical Deterioration
Wear and tear Frequently estimated by age-life
annual depreciation = 1/expected lifetotal depreciation = age x (1/expected life)
Pipeline 10 years old50 year life20 % depreciation
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Functional Obsolescence Functional Obsolescence
Defect reducing ability to provide intended function
Inadequacy — missing required features Superadequacy — unnecessary added features Curable — cost to cure Incurable — capitalized income loss
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External Obsolescence External Obsolescence
Negative influence outside property Nuisances Pollution Capitalized income loss
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Cost Value EstimateCost Value Estimate
Most valid for new improvements Difficult to estimate when much
depreciation is present Improvements often not an important
portion of value
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Sales Comparison Value Estimate Sales Comparison Value Estimate
Very reliable when ample recent sales are available
Easy to explain Not reliable when dramatic market
changes have recently occurred
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Income Capitalization Value EstimateIncome Capitalization Value Estimate
Most valid when buyers focus on income production
Unstable when non-income considerations motivate buyers
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Module 7 ReviewModule 7 Review
Credible analysis of market transactions
rigorous analysis of market transactionsrecognizable units of comparisonsimulate competitive market for subject
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Module 7 Review Module 7 Review
How to adjust comparable salesadjust comparables to subjectadd when subject is superior to salesubtract when subject is inferior to saleconfirm information with principalsfirst adjustments are for property rights, financing, market
trends
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Module 7 Review Module 7 Review
Major agricultural activities irrigated croplandlivestock operations (cattle, sheep, goats)horticultural operations (fruits, berries, trees, grapes, etc.)timberland dairies
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Module 7 Review Module 7 Review
Estimating cost replacement cost versus reproduction costcost less depreciation plus land equals valuecost servicesdepreciation includes: physical, functional, and
external
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Module 7 Review Module 7 Review
Review and reconcilecompare income, sales comparison, and
cost approach estimatesrely on most reliable datarely on most appropriate for property type
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Self Assessment Questions Self Assessment Questions
Sales comparison analysis does what A 200 animal unit ranch has which of the
following The first three items in a sales adjustment grid
are: Two methods of obtaining adjustments are
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Self Assessment Questions Self Assessment Questions
An acre foot of water is A timber cruse is what Reproduction cost refers to what Depreciation in the cost approach does
what