The importance of the data source is suggested by the detail required for each comparable sale. Usually it is unlikely that all this in-formation will be secured from a single source.
For example, the appraiser may identify a prospective comparable sale from the local property tax records. Typically additional sales information must be obtained by interviews with the buyer, the seller, or the listing broker. For large-scale income properties, such as a 500-unit apartment or an industrial plant of 100,000 square feet, the sales details would cover physical characteristics of the site and building structure. At a minimum, the market data approach requires the following information:
Name of buyer.
Name of seller.
Date of sale.
Deed book and page.
Type of conveyance instrument (that is, warranty deed, contract, special warranty deed).
Terms of sale.
Number of square feet.
If the appraisal report is written for the purpose of presenting an appraisal opinion in court, this type of documentation would be required. In addition, lenders who rely on appraisal reports to determine the maximum mortgage loan depend on these data to verify the facts of the sale. Listing the buyer and seller by name, the date of sale, the legal description, and the deed book and page number makes it relatively easy for a third party to verify the transaction. Such documentation proves that the appraiser bases his or her opinion on actual transactions that may be verified. The price shown on a per unit basis allows the comparison, for example, of a 300-acre land sale with a 100-acre land sale.
The same reasoning applies to property improved with buildings. The description of the property in terms of the square feet, number of acres, or front feet (in the case of a commercial lot) and other details suggests the relative comparability of the properties sold to the property appraised.
Under the remarks section, it is explained how the property compares to the property under valuation. For instance, it may be noted that real estate prices have increased approximately 10 percent from the date of sale (12 months earlier) to the present time. Under remarks, the appraiser usually notes differences between the property sold and the property appraised and other facts relevant to interpreting the sales price.
It has been pointed out that the appraiser must show how the sale of a property which differs in some important respects from the property appraised leads to the value conclusion. For example, what is the indicated value of a house with one carport if a similar house with two carports recently sold tor P75,000? An analysis of recent sales, let us say, would lead the appraiser to reason that if a house with a two-car garage sold for P75,000, a similar house with a one-car garage would have a value of P72,500. For each important characteristic, the appraiser adjusts the sales price to account for differences between the property sold and the property appraised.
Initially the appraiser must select those features for which each sale must be “adjusted” to show how thy price indicates the market value of the property appraised. In the appraisal of single-family dwellings, the more common features subject to adjustment cover:
Terms of sale
Square foot floor area
Number of bathrooms
Type of construction
Condition of dwelling
Age of building
Next week, we talk more on sales adjustments as part of the appraisal process.