Question

In: Finance

Mr. Lowry wants to appraise the value of his home by the Direct Market Comparison Approach....

Mr. Lowry wants to appraise the value of his home by the Direct Market Comparison Approach. The following information has been gathered about three recent sales in his neighbourhood..

Subject Property

Sale #1

Sale #2

Sale #3

Sale Price

$875,000

$820,000

$779,000

Sale Time

Recent

3 months ago

3 months ago

Lot Size

50’ x 110’

55’ x 100’

55’ x 110’

45’x 105’

House Size

3,000 s.f.

3200 s.f.

3,000 s.f.

3000 s.f.

Washrooms

3

2

3

1

Fireplace

Yes

Yes

No

Yes

Finished Rec Room

Yes

No

No

Yes

Walkout basement

No

Yes

Yes

Yes

Air Conditioning

Yes

Yes

No

No

Other Information of Mr. Lowry’s property is given as follows;

Projected price increase per month                               2%
Projected increase started                                             6 months
Land value per frontage foot                                         $3,500
Space cost per foot       ($1,000/100)                            $10.00
Air conditioning                                                            $4,000
Fireplace                                                                      $5,500
Finished recreation room                                              $10,800

Washroom                                                                    $8,000

Walkout basement                                                        $10,000

Required: Estimate the appraised value of Mr. Lowry’s home.

Solutions

Expert Solution

Mr Lowry's house would be appraised based on the value of #Sale 2 which took place 3 months back (with necessary adjustments). We have take #SALE 2 for appraisal because its Lot size and House size are same as that of Mr Lowry.

Mr. Lowry's house has additional Fireplace, Finished Recreation room and Air Conditioner, so will be add value of these items to the sales value of #SALE 2

Mr Lowry's house does not have Walkout basement, so will reduce its value from the sales value of #SALE 2

Sales value of Mr. Lowry's house (3 months back ) = Sale price of #SALE 2 + Value of Fireplace + value of Finished Recreation room + value of Air Conditioner - value of walkout basement

Sales value of Mr. Lowry's house (3 months back )c= $8,20,000 + $5,500 + $10,800 + $4,000 - $10,000

Sales value of Mr. Lowry's house (3 months back) = $ 8,50,300

We are given that projected price increase per month is 2% of previous months' price

Therefore, value of Mr Lowry's house today = $8,50,300 * (1+0.02)3

value of Mr Lowry's house today = $9,02,345 (approx)

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