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Comparable Sales Confirmation Comparable sales are the key ingredients in performing the sales comparison analysis. The sales comparison analysis is one of three primary approaches to valuing real estate. The two other primary approaches are the income approach and cost approach. The sales comparison approach is often considered the most reliable approach in valuing houses and owner-occupied commercial properties. It is also widely utilized as additional support for the income approach or the cost approach when valuing other types of property. Comparable sales confirmation can be a time-consuming and tedious process. In many states, including Texas, the sale price is not readily available to the public. Texas is what is sometimes referred to as a nondisclosure state. In "full disclosure" states the sale price of real estate is publicly available. In addition to obtaining the sales price, there are multiple additional factors which need to be verified to best understand the meaning and implications of the sale. Conversations or interviews with the buyer, seller, broker or other parties involved in the transaction can provide meaningful insights into the issues affecting the sale price. While the market value of real estate is often quite similar to the sale price, in many cases the market value is different than the sale price. A central factor is whether the transaction was an "arms’ length sale". If the buyer was under duress to purchase the property to complete a tax-free exchange (1031 purchase), the sale price may have been higher than typical due to the buyer's motivation. Conversely, if the seller is financially distressed or eager to sell to obtain cash for other purposes, the purchase price may be less than typical. Favorable financing can dramatically impact the sale price while unfavorable financing can effect a sale price less than market value (without consideration of the financing). Favorable or unfavorable leases can have a material impact on the sale price of real estate. For example, if market rent for a property is $20 per square foot but the building has leases (in effect for another 10 years) at $30 per square foot, the purchase price can be artificially inflated to a level far in excess of the fee simple value. Comparable sales confirmation should address as many of the following elements as possible: · Basic property information · Grantor · Grantee · Sale price · Sale date · Financial data · Capitalization rate · EGIM · Comments · Information from the buyer, seller and other parties regarding issues which positively or negatively affected the sales price. Confirming comparable sales is a detailed and time-consuming process. Obtaining the best available information regarding the most comparable sales provides essential data for effectively performing the sales comparison approach. Commercial Comparable sales -- Sales Comparison Approach Commercial comparable sales are the building block of the sales comparison approach. The quality and quantity of comparable sales data impacts the reliability of the sales comparison approach. Selecting comparable sales that are most similar to the subject property requires analysis and judgment. The factors given greatest consideration when selecting comparable sales include: location, date of sale and similarity of property. Depending on the quantity and quality of comparable sales data available, it is sometimes necessary to use sales that occurred three or five years prior to the effective date of valuation to obtain comparable sales that are meaningful. In most cases in urban areas, it is possible to obtain a reasonable number of comparable sales that are similar with regard to location, effective date of the valuation and the subject property. Factors affecting the location of comparable sales can include the income characteristics, distance from the subject property and the type of location. In some cases for commercial properties, a property can be only one-half mile away from the subject property but have completely different income characteristics. For example, if either a natural or man-made barrier divides the subject property and the comparable sale, the market rent can vary substantially. In most cases, sales closer to the subject property are considered more desirable. However, the actual distance is less important than the similarity of the location with regard to economic factors. For some types of property such as land, the specific type of location can be critical. The market value of a one-acre tract of land at the hard-corner of a freeway and a major thoroughfare can be substantially higher than the market value of an adjacent one-acre tract not located at the hard-corner. Comparable sales should be as close to the effective date of the valuation as possible. In most cases, the effective date of valuation is quite similar to the date when the appraisal is being performed. However, in retrospective appraisals, the effective date of appraisal can be years prior to the current date. The date of sales can be before or after the effective date of valuation in retrospective appraisals. This is true unless there is a cataclysmic event which sharply changed valuation between the effective date of valuation and the date of the sale. While it would be ideal to have comparable sales within months of the effective date of valuation, in many cases chronological proximity must be sacrificed for properties similar with regard to location and physical characteristics. Comparable sales must be similar to the subject property to be meaningful. For example, a comparable sale of an office building would not be meaningful in valuing a church. A comparable sale of an individual condominium unit would not be considered meaningful in valuing a 300-unit apartment complex. The comparable sales will almost always have the same land use code or property type as the subject property. For land, comparable sales should have the same highest and best use as the subject property. Selecting meaningful sales involves judgment, research and analysis. However, selecting meaningful comparable sales provides the foundation for performing a reliable sales comparison approach. Comparable Sales -- Land Abstraction Comparable sales of improved properties can be utilized to estimate the market value of land in fully built-up areas. For example, consider an area near downtown Boston which has been fully developed for over 200 years. It may be virtually impossible to locate sales of vacant land in this area. One alternative is to estimate the market value of land based upon the sales price for improved properties less the market value of improvements. The market value of a property is comprised of the sum of the market value of the land and the market value of the improvements. The market value of the improvements is the replacement cost new (RCN) less depreciation. Calculating depreciation for comparable sales can be difficult. Components of depreciation include physical, functional and external. Physical depreciation can include both short-life depreciation and long-life depreciation. Functional depreciation can include curable and incurable. External depreciation can include economic factors, unfavorable neighboring properties and other issues external to the property. Comparable sales can be utilized to estimate the market value of land by utilizing the following process: 1. Locate sales of property for which the underlying land is similar to the subject property. 2. Research the sale to determine whether it was an arms’ length transaction and any atypical issues artificially influenced the sales price. Making adjustments for atypical issues reduces the reliability of the land abstraction process. 3. Estimate the replacement cost new (RCN) of the improvements for the comparable sale. 4. Calculate all forms of depreciation for the improvements on the comparable sale. 5. The market value of the improvements for the comparable sale is equal to the replacement cost new less all forms of depreciation. 6. The market value of the land for the comparable sale is equal to the market value of the total property less the market value of improvements. Land abstraction based upon comparable sales can be a useful technique in fully built out areas. However, this technique is less reliable than direct sales of land due to estimates of replacement cost new and depreciation. Commercial Comparable Sales -- Matched Pair Analysis Commercial comparable sales can be used to perform analysis regarding a variety of factors and issues impacting the value of real estate. The basic technique is to identify two sales that are identical except for the issue being evaluated. For example, to determine trends in market value over time, the sale price of a tract of land at two points in time can be compared to determine whether values are increasing or decreasing. The following is a list of some items that can be analyzed utilizing the matched pair technique: · Market conditions · Corner versus non-corner · Size (land or buildings) · Age · Location · Window air conditioner versus Central air conditioner · HVAC versus a chilled water cooling system for apartments · Original kitchen versus remodeled kitchen · Swimming pool · Condominium on the 4th floor versus a condominium on the 20th story of a high-rise building Following are the steps to perform a matched pair analysis: 1) Locate comparable sales identical in all regards except for the issue being evaluated. Locating meaningful data is the most difficult part of performing a matched pair analysis. It is ideal to have two or three sets of matched pairs to evaluate a single factor. In practice, it is often difficult to develop one truly identical matched pair. In many cases, it is necessary to make adjustments for an additional item before performing the matched pair analysis. For example, when comparing an apartment complex with a chilled water cooling system versus an apartment complex with separate HVACs, it may be first necessary to make adjustments for another factor such as age or size. 2) Evaluate the difference in sales price between the matched pair. The comparison can either be done on a gross sales price basis or utilizing a unit of measure (such as sales price per square foot or per unit). 3) Review whether the result is reasonable. For example, a matched pair which indicates a swimming pool (which cost $30,000 to install) adds $50,000 to the market value of a home is likely not reasonable. Match pairs can be a valuable tool in evaluating the impact of factors affecting the market value of real estate. Other options for analyzing these factors include interviews with brokers, buyers, sellers and other market participants, analysis of depreciated cost differences and capitalizing differences in rental rates. Comparable Sales – Units of Measure Comparable sales are routinely utilized to develop an opinion of value using the sales comparison approach, one of the three primary approaches to valuing real estate. (The two other primary approaches are the cost approach and income approach.) In some cases, the gross sales price is utilized to develop an opinion of value for the subject property. However, the sales price is more often converted to a unit of measure such as price per square foot or per unit sales price. This article overviews the units of measure utilized for different types of property. Comparable sales are typically converted to a per square foot unit of measure. This is typically used for homes, condominiums, town homes, duplexes, office buildings, retail, industrial and apartments. For homes, the per square foot unit of measure is typically based upon the living area (based on external measurements) and does not include areas not air-conditioned such as the garage and porches. For commercial properties and apartments, the per square foot value is typically based on the net rentable square feet instead of the gross square feet (which includes common areas). In some cases based on the judgment of the analyst or local practice, the evaluation focuses more on the sales price per square foot of gross building area. Apartments are often evaluated on the sales price per unit instead of the sales price per square foot. In many cases, the sales price per square foot and per unit are both considered. For apartments with above average unit sizes, the sales price per unit tends to be higher and the sales price per square foot tends to be lower. The converse is true for apartments with below average size units. Following are examples of property types that utilize different units of measure: · Car washes -- number of bays · Movie theaters -- number of seats and / or gross building area · Auto service garages -- number of service bays and / or square feet · Oil change facilities -- number of service bays and / or square feet · Churches -- number of seats and / or square feet · Golf courses -- number of holes · Self storage -- number of units and / or square feet · Land – square feet, acres or frontage feet The appraiser or analyst selects the appropriate unit of measure when analyzing comparable sales. In addition to customary local practice, discussions with investors, brokers and appraisers can provide meaningful insights into the most effective unit of measure. Commercial Comparable Sales -- Land Sales Commercial comparable sales analysis is the technique most often utilized to value land. Valuing the land is often more difficult than valuing improved properties since the appraiser cannot consider all three approaches to value. In most cases, the sales comparison approach is the only meaningful option for valuing land. Selecting appropriate comparable land sales is essential when performing the sales comparison approach for land. Four factors given primary consideration when selecting comparable land sales are: 1) location, 2) size, 3) highest and best use and 4) date of sale. The often quoted saying regarding real estate is what matters is location, location, location. While location is important in selecting comparable land sales, other factors also merit careful consideration. Appraisers often adjust for differences in size for properties which are similar in size. For example, it would be reasonable to adjust for differences in size between a one-acre subject property and a two-acre comparable land sale. However, it would not be reasonable to adjust for differences in size between a one-acre comparable sale and a 100-acre subject property. The difference in size is too large to consider the properties comparable. Discerning what size properties are acceptable as comparable sales and can be reasonably adjusted requires analysis and judgment from the appraiser. Appraisers generally agree that the comparable land sale and the subject property must have the same highest and best use. While there may be extreme cases where it is not possible to find properties which have the same highest and best use as the subject property, it would be extremely difficult to adjust for differences in economic benefit between parcels which have a different highest and best use. Performing a credible and reliable valuation of land using the sales comparison approach requires comparable sales with the same highest and best use as the subject property. Comparable land sales with a date of sale near the effective date of valuation are highly desirable. However, in most cases the appraiser is required to evaluate the benefit of using sales which are more similar with regard to location and size versus sales which are chronologically more similar to the effective date of valuation. There is no clear-cut answer to determining which sales are most effective for valuing the subject property. In some cases, it is possible to extract an adjustment for market conditions (based upon a matched pair sales analysis) and utilize sales which occurred substantially before or after the effective date of valuation. The first step in determining comparable land sales should be to locate properties with the same highest and best use as the subject property. Those that are most similar with regard to size, location and date of sale can be chosen from this group of data. Valuing land is often quite straightforward when the appraiser has meaningful comparable land sales. Houston Commercial Comparable Sales Houston commercial comparable sales data is readily available from oconnorcomps.com. Real estate appraisers, investors, brokers and other real estate professionals use commercial comparable sales data to make critical decisions. Accurate and timely commercial comparable sales data is available to assist making decisions regarding Houston area commercial real estate. Oconnorcomps.com offers the following volume of commercial comparable sales data for Houston and Texas: · Commercial sales in Houston · Land sales in Houston · Commercial sales in Texas · Land sales in Texas Commercial comparable sales data is available for the following Texas cities: Houston, Dallas, Fort Worth, Austin, San Antonio, Beaumont, El Paso, Brownsville, Amarillo, Victoria, Tyler, Longview, Midland, Odessa, Texarkana and many additional cities. Commercial comparable sales data available from oconnorcomps.com can be used for the following purposes: · Setting the asking price for property made available for sale · Reviewing the reported market value for property proposed as collateral for a loan · Documenting recent sales activity in a sub market by a commercial real estate broker when preparing a package offering a commercial property for sale · Reviewing the proposed asking price of a property being considered as an acquisition candidate · Evaluating the sales history for a property being appraised or being considered as an acquisition · Determining trends for market value within an area · Analyzing capitalization rates and EGIM rates within a submarket · Preparing a ratio study for property tax purposes Commercial comparable sales data for Houston includes information regarding sales of land, apartments, office buildings, retail buildings, warehouse buildings, office warehouse buildings, self storage properties, hotels, nursing homes, retirement homes, restaurants, convenience stores, fast food restaurants, bars, auto dealerships, automotive service properties, truck stops, car washes, community shopping centers, malls, neighborhood shopping centers, discount stores, department stores, medical offices, banks, funeral homes, veterinary clinics, day care centers, drugstores, country clubs, cold storage facilities, service center warehouses, auto salvage yards, schools, churches and hospitals. Commercial comparable sales data is gathered from our staff of appraisers, other appraisers and other sources considered reliable. A dedicated internal staff is focused on obtaining comparable sales data, supplementing available data and updating the commercial comparable sales database. Access to the oconnorcomps.com database can be attained either on a subscription basis or exchange for commercial comparable sales data. For more information contact Noble Ginther at 713-866-9955. Dallas/Fort Worth Commercial Comparable Sales Data Commercial comparable sales data for the Dallas/Fort Worth area is available from Oconnorcomps.com. Timely and accurate data regarding commercial comparable sales is essential in making prudent decisions regarding buying and selling real estate. Real estate professionals in Dallas and Fort Worth regularly rely on commercial comparable sales information from O'Connor & Associates as the basis for making decisions regarding commercial real estate. Oconnorcomps.com has more Texas commercial comparable sales data than any other source: · Dallas/Fort Worth commercial comparable sales · Dallas/Fort Worth land sales · Texas commercial comparable sales · Texas commercial land sales Commercial comparable sales data is available from oconnorcomps.com for: Dallas, Fort Worth, Houston, San Antonio, Austin, Victoria, El Paso, Brownsville, Harlingen, Midland, Odessa, Texarkana, Lufkin, Beaumont, Orange, Longview, College Station, Prairie View, Bryan, and many more cities. Real estate investors, brokers, appraisers and lenders use commercial comparable sales data for: · Reviewing the asking price of a property being considered for acquisition · Evaluating the sales history of a property being considered as an acquisition or as collateral for a loan · Analyzing trends for market value within a submarket · Analyzing the level and trends for cap rates and EGIM rates in a submarket · Preparing a ratio study for property tax purposes · Evaluating options for establishing an asking price for property being offered for sale · Evaluating the reported market value of property being considered as collateral for a loan · Documenting market value and recent sales activity in a package offering commercial real estate for sale Commercial comparable sales data for the Dallas-Fort Worth metropolitan area includes information regarding sales of office buildings, land, apartments, retail, warehouses, hospitals, churches, schools, auto salvage yards, service center warehouses, cold storage facilities, country clubs, drugstores, day care centers, veterinary clinics, funeral homes, banks, medical offices, department stores, discount stores, neighborhood shopping centers, malls, community shopping centers, car washes, truck stops, automotive service properties, auto dealerships, bars, restaurants, fast food establishments, convenience stores, retirement homes, nursing homes, hotels, and self storage properties. Oconnorcomps.com is the only source offering commercial comparable sales data throughout Texas. A dedicated staff gathers information from our appraisers, appraisers with other firms and a variety of sources considered reliable. Data is reviewed, supplemented and added to the database daily. Commercial comparable sales data is available from oconnorcomps.com either on a subscription basis or by providing data in trade. For further information, contact Noble Ginther at 713-686-9955. Austin Commercial Comparable Sales Data Commercial comparable sales data is essential for Austin real estate professionals in making reasoned decisions regarding buying, selling and financing real estate. Accurate and timely commercial comparable sales data provides investors, brokers, lenders and appraisers the edge and advantage they need to efficiently make prudent decisions. Real estate professionals in Austin, Texas regularly rely on commercial comparable sales data from oconnorcomps.com when making decisions and preparing documentation. Oconnorcomps.com offers the largest volume of data and widest geographic breadth of data available for Texas: · Commercial comparable sales in Austin · Comparable land sales in Austin · Commercial comparable sales in Texas · Comparable land sales available in Texas Oconnorcomps.com has commercial comparable sales and land sales data for: Austin, Houston, San Antonio, Dallas, Fort Worth, Amarillo, Odessa, Midland, Beaumont, Corpus Christi, Brownsville, Harlingen, Longview, Texarkana, Victoria, El Paso and many other Texas cities. Real estate professionals regularly utilize commercial comparable sales data from oconnorcomps.com for the following purposes: · Obtaining comparable sales when preparing an appraisal · Documentation when preparing a package offering a commercial property for sale · Reviewing the asking price of property being offered for sale · Evaluating the sales history of property be considered as collateral or as an acquisition candidate · Determining trends for market value within a submarket or metropolitan area · Analyzing capitalization rates within a sub market · Preparing a ratio study for property tax purposes · Establishing the asking price for property being offered for sale · Analyzing the proposed market value of collateral for property being offered for collateral Austin commercial comparable sales data includes information regarding sales of warehouses, retail buildings, office buildings, land, apartments, car washes, community shopping centers, malls, neighborhood shopping centers, discount stores, department stores, medical offices, banks, funeral homes, veterinary clinics, day care centers, drugstores, country clubs, cold storage facilities, service center warehouses, auto salvage yards, schools, churches, hospitals, self store storage properties, hotels, nursing homes, retirement homes, restaurants, convenience stores, fast food restaurants, bars, auto dealerships, automotive service properties, and truck stops. A dedicated staff compiles commercial comparable sales data and land sales data for properties throughout Texas. Additional data is obtained, reviewed, supplemented and added to oconnorcomps.com daily. Commercial comparable sales data from oconnorcomps.com is available either on a subscription basis or in exchange for commercial comparable sales data. For further information, contact Noble Ginther at 713-686-9955. San Antonio Commercial Comparable Sales Data Commercial comparable sales data is essential for making well-reasoned decisions regarding buying, selling, financing or appraising commercial real estate. Oconnorcomps.com offers San Antonio real estate professionals the timely and accurate commercial comparable sales data they need to work effectively and efficiently. O'Connor comps.com has more commercial comparable sales data for Texas than any other source. Commercial comparable sales data is available for more than 50 Texas counties. · Commercial comparable sales in San Antonio · Comparable land sales in San Antonio · Commercial comparable sales in Texas · Comparable land sales in Texas Commercial comparable sales data is available for: San Antonio, Austin, Houston, Dallas, Fort Worth, Victoria, El Paso, Brownsville, Harlingen, Amarillo, Odessa, Midland, Longview, Tyler, Beaumont, Corpus Christi, and many more Texas cities. San Antonio real estate professionals regularly use commercial comparable sales data from oconnorcomps.com when: · Preparing documentation to offer a property for sale · Preparing an appraisal · Reviewing the asking price of property being considered as an acquisition candidate · Reviewing the reported market value of property offered as collateral for a loan · Setting the asking price when making property available for sale · Preparing a ratio study for property tax purposes · Reviewing capitalization rates for commercial property within a submarket · Determining trends for market value for property within a submarket · Reviewing the sales history for property being considered as an acquisition, or as collateral for a loan Oconnorcomps.com offers San Antonio real estate professionals access to commercial comparable sales data for office buildings, apartments, land, warehouse buildings, retail buildings, community shopping centers, malls, neighborhood shopping centers, discount stores, department stores, self storage properties, hotels, nursing homes, retirement homes, restaurants, convenience stores, fast food restaurants, bars, auto dealerships, automotive service properties, truck stops, car washes, medical offices, cold storage facilities, service center warehouses, auto salvage yards, schools, churches, hospitals, banks, funeral homes, veterinary clinics, day care centers, drugstores, and country clubs. A dedicated O’Connor & Associates staff obtains information regarding land comparable sales and commercial comparable sales daily, reviewing the information, supplementing data not included, and adding information to the commercial comparable sales database. Comparable sales data is gathered from our appraisers, other appraisers and other sources considered reliable. San Antonio real estate professionals can access oconnorcomps.com either on a subscription basis or in trade for data. For additional information, contact Noble Ginther at 713-686-9955.