Ch 7

1. MGT 374
Real Estate Analysis
College
of Business
AlfaisalUNIVERSITY

2. Country Index
World Bank 3
U.S. 3
NewYork 6.1
London 6.5
Hong Kong 11.4
Saudi Arabia - Public 14
Saudi Arabia - Private 29
Home Ownership
Multiple of Annual Income
From:Abdullah Al Shehri
Source: 7th Annual Demographia International Housing Affordability Index

3. Chapter 6
Market Research

4. Market Research
effective real estate
market research is
often a matter of
excluding the
irrelevant.

5. Market Research
general to specific
zoom in
specific to general
zoom out

6. Write a story
What is the property?
Who are the users?
Where are the users?
What do they care about?
Who are the competitors?

7. GIS
Graphic Information System
Data Maps

8. Chapter 7
Sales Approach
and
Cost Approach

9. The 8-step Appraisal Process
Identify the Problem
Determine the Scope of Work
Collect Data and Describe Property
Perform Data Analysis
Determine LandValue
Apply Approaches to Estimate MarketValue
Reconcile IndicatedValues from the Approaches
Report FinalValue Estimate

10. Identify Problem
Identify 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

11. 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

12. Perform Data Analysis
Market 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

13. Highest and Best Use
(1) legally permissible,
(2) physically possible,
(3) financially feasible,
(4) maximally productive

14. Legally
Permissible
Physically
Possible
Financially
Feasible
Max
Highest and Best Use

15. Apply Three Approachs
Sales Approach
Cost Approach
Income Approach

16. MarketValue
the 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.

17. MarketValue
Implicit 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:

18. MarketValue -1
buyer and seller are
typically motivated.

19. MarketValue - 2
both parties are well informed
or well advised, and acting in
what they consider their own
best interests.

20. MarketValue - 3
a reasonable time is allowed for
exposure in the open market.

21. MarketValue - 4
payment is made in terms of
cash in U.S. dollars or in terms
of financial arrangements
comparable thereto.

22. MarketValue - 5
the 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..

23. InvestmentValue
value to an individual
not to the market in general.

24. Sales Approach
What is the market
suggesting the subject
property is worth?

25. Regression?
sample size is usually
too small

26. Comparables
inferior add
superior deduct

27. Location Map
Faisal Street
KhalidStreet
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

28. 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

29. Matched Pairs
Same expect for one
factor

30. 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

31. 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%

32. 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%

33. 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%

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
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%

35. 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 121.63
Indication 120

36. Size in SM 12,000
Rate Per SM 120
Indication 1,440,000
Sales Approach

37. Location Map
Faisal Street
KhalidStreet
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

38. Cost Approach
Cost to replace
LandValue
ImprovementValue

39. Faisal
Awamar
Abdar Tower Building.
Location: Olaya St. intersect
with Al-ThumamaValley St.
Olaya District.

40. Faisal
Awamar
Abdar Tower Building.
Location: Olaya St. intersect
with Al-ThumamaValley St.
Olaya District.

41. Faisal
Awamar
Abdar Tower Building.
8 stories 2 under ground floors
B2, B1, G, 1, 2, 3, 4, 5 floors.

42. Faisal
Awamar
Abdar Tower Building
Land Size:1,850
Building Size: 6,230

43. Subject Property
Land 1,850 SM
Building 6,230 SM

44. LandValue
Sales Approach
Other Approaches

45. ImprovementValue
Cost New
Less: Depreciation

46. Accrued Depreciation
Physical Deterioration
Functional Obsolescence
External Obsolescence

47. Physical Deterioration
wearing out over time

48. Functional Obsolescence
design flaw

49. External Obsolescence
a change in the location
characteristics

50. ImprovementValue
Economic Life
Effective Age

51. ImprovementValue
Economic Life = 40 years
Effective Age = 10 years
Age ÷ Life = Depreciation
Age ÷ Life = 25%
Remaining Economic Life
30 years

52. ImprovementValue
Cost New PSM = 3,000
Less Depreciation 25%
Effective Cost PSM = 2,250

53. Size
Effective
Rate
Indication
% of
Total
Land 1,850 3,000 5,550,000 28%
Building 6,230 2,250 14,017,500 72%
Indication 19,567,500 100%
Cost Approach