Question

Real estate investment

As an example, suppose that the subject property is a 20-unit apartment complex. Three recent sales of comparable properties have been discovered and the data has been verified with sellers and buyers. The three areas are as follows:

Comparable Sales Price Units Potential Gross Income

#1 $600,000 25 $100,000

#2 $750,000 30 $128,000

#3 $450,000 18 $74,000

PGI of Subject (Potential Gross Income)=$82,000

Comparable #1 offers amerities and location nearest to the subject property but has superior landscaping estimated to be worth $5,000 more than subject. Its swimming pool is comparable to the subject's, judged to be valued at $16,000. It sold three months ago.

Comparable #2 also has a swimming pool; it sold six months ago with favorable seller financing judged to add $15,000 to the price that would have been had typical financing been employed.

Comparable #3 is two blocks from a bus stop, whereas the subject is eight blocks from the stop. Each block from the bus stop is judged to detract $3,000 from value. It sold two days ago. It does not have a pool.

Price have been rising by 0.5% per month for the type of property in the local market.

Question: Develop an estimate of market value of the subject property (Vs= Units x adjusted SP/unit) ( where Units are 20)

Hints: build grid with appraisal adjustments on feature SP, TOS, Pool, Land, Fin, Location that come up to Adjusted SP/unit

Where TOS are time of sales(Price rising by 0.5% per month and affect its respective adjusted SP) and FIN are financing

Answer 1

Selling price	$82,000 / 0.164 = $500,000
Swimming Pool (Original Cost) Effect of price rise 1.5% of $16000 for 3 months Total Swimming pool cost	$16,000 $240 $16,240
Financing Cost	$15,000
Total	$531,240
Location disadvantage: (deduct $3000 for 8 blocks away from bus stop from )	$3000 * 8 = ( $24,000 )
Total Market value for Subject property	$507,240

Explanation:

1. Selling Price: Using capitalization formula R = I / V

where R= Rate

I = Potential gross income

V = comparable Sales price

We have subject's Potential gross income of $82,000 and if we take $450000 as sales price from #comparable 3 because subject's (20unit) is close to the (18unit) of #comparable 3 and it has been sold only 2 days ago.

so we can calculate the Rate as $82,000 / $450000 = 0.164

Again using similar formula we can substitute rate of 0.164, PGI of $82000 and divide the same and get $500000 as adjusted Market value.

2. Swimming Pool cost: Taken same cost as #comparable 1 of $16000, since it has similar swimming pool as mentioned, increased the value of swimming pool by 0.5% * 3 months = 1.5%

3. Financing cost : $15000 taken from #comparable 2.

4. Location disadvantage: Since subject's locality is 8 stops away from bus stop we multiplied $3000 with 8 and total of $24000 deduted from total market value.

After considering all the features subject's market value comes to $507,240 per unit.