More on Sales Adjustments

There is some practical limit to the number of adjustments that may be made. A practical limit would be six characteristics that are subject to sales adjustments. As the number of adjustments increases, the sale gradually loses the required degree of comparability. To cite an extreme example, you would not use the sale of a 3,000-square-foot house to value a 1,000- square-foot house; nor would you ordinarily use the sale of a two-story, 30-year-old wood frame house to appraise a new one-story brick veneer house.

To illustrate, note that Sale 1, which was made for P72,800 eight months ago, is adjusted upward by P2,000 for time of sale. It is reasoned that a dwelling that sold for P72,800 eight months ago has a current market value of P74,800. Each sale is adjusted upward to account for the increase in value since the date of sale. Similarly, since the lot of the property under valuation is considered more desirable than the lot of Sale 1, it is estimated that the lot of the property appraised will be worth an additional P1,000. Hence if the property sold for P72,800 with a less desirable lot, according to the appraiser, the sale indicates a market value of P73,800 with respect to the lot. With respect to the location, Sale 1 is adjusted downward by P2,000 since the property appraised has a location regarded as less desirable than that of Sale 1. In this manner each transaction is adjusted upward or downward to account for differences between the property sold and the property appraised.

By accounting for these individual differences, each sale indicates a market value of the subject property (the property appraised). In this instance the indicated values range from P71,500 to P73,900. Next it would be subjectively determined which of these prices is the most accurate indicator of value. If Sale 4 were believed to be the most comparable property, requiring the least amount of adjustments, the appraiser would probably estimate the market value at P71,500.

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Though the market value estimate is highly personal, it should be remembered that the appraiser qualifies his judgment by his experience, special training, and general knowledge of market prices. This method of adjusting sales shows how the appraiser arrives at the estimate of value under the market approach and to this extent tends to make the appraisal more objective.

GROSS INCOME MULTIPLIERS

The gross income multiplier (GIM) expresses the relation between gross income and sales price. An apartment house sold for P360,000 with a gross income of P60,000 illustrates an annual gross income multiplier of 6.0 (P360,- 000/P60,000). The gross income multiplier is established by comparing the sales prices and gross income of numerous income properties of the same type. The gross income multiplier may be used to value property with a known gross income. Assuming a gross income multiplier of 6.0, an apartment dwelling with a gross income of P100,000 would have an estimated market value of P600,000.

I will elaborate more on these gross income multipliers once I have the time to finish my calculations. It has been a busy month for me so far, I have been doing a lot of my charity work. I would like to show pictures soon.

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