This is a 2-part ACTIVITY: Approaches to Value (Term Paper Part 5) There are TWO

This is a 2-part ACTIVITY: Approaches to Value (Term Paper Part 5)
There are TWO PARTS to this assignment. You will submit your 1004 form as a PDF document AND THEN type your narrative (5 paragraphs) and SUBMIT as a Word document. Please SAVE a copy of your assignment to a Microsoft Word document or google doc. You will need a copy of it later for your final paper, “Appraisal Report of Single Family House”. You will discuss the 1004 appraisal report you completed, as well as describe the steps involved in each of the three classic approaches to value. Scroll down for an example of the completed 1004 and sample narrative paragraphs.
Step-by-Step Video
Instructions
First, go back to the URAR 1004 Appraisal form you have been completing. You will complete the Cost Approach section and Income section on page 3 of the report, and submit it. Next, you will also write 5 paragraphs in the template as shown below. Once you have completed the bottom of page 3 of the 1004 appraisal form, you will write out your results while incorporating the reflection summaries you wrote previously. Using the template below, write the number of paragraphs indicated. Include the heading for each one. This will be for the section of your final term paper dealing with appraisal methods. It must relate to the subject property and comps as listed on the appraisal you completed in Parts 3 and 4. In addition, it must describe, based on the textbook, the steps involved in each of the three classic approaches to value. The textbook will be cited once in each paragraph.
Part 1. URAR Form 1004 Appraisal Report Page 3
On page 3, complete the Cost Approach section using what you learned in Chapter 8. After that, complete the Income Approach section using the knowledge you learned here in Chapter 10. Below are references to examples of each section as illustrated in the textbook.
URAR form 1004 page 3 examples/information:”Cost Approach” section = textbook page 268 (Ch. 8) & page 371 (Ch. 12)
“Income Approach” section = textbook page 315 (Ch. 10) & page 372 (Ch. 12)
GRM (Multiplier)The Gross Rent Multiplier (GRM) is simpler because it is based on gross rents/income collected, rather than the net. In other words, you do not need to subtract the expenses first. It is designed to be a quick method to let the investor know how many years of rent it would take to pay off the purchase price. Therefore, financing/loans is not factored into the equation. It is sometimes referred to as the “Multiplier” or the Gross Income Multiplier (GIM), which accounts for rents collected, plus other possible sources of income (coin-operated laundry, parking fees, etc.). The GRM should be GIVEN by the listing agent on the property’s LoopNet site.
GRM calculation is shown in textbook in chapter 10.
The higher the GRM, the higher the property value, as shown below in these calculations.
Property Value = Gross Rents x GRM
GRM = Property Price / Gross Rents
Gross Rents = Property Value / GRM
Gross RentsThis is the ANNUAL amount of rents collected on every unit (the entire year). You will find this on the Rent Roll, which lists each unit and the amount of rent collected each month. Take the total amount of rent collected per month and multiply that times 12 (so it will be the annual amount).
Rental AmountFind comparable rents here: www.RentOMeter.comLinks to an external site.
Cost to Build a House
https://www.newhomesource.com/learn/cost-to-build-house-per-square-footLinks to an external site.
https://www.homeadvisor.com/cost/architects-and-engineers/build-a-houseLinks to an external site.
https://homeguide.com/costs/cost-to-build-a-houseLinks to an external site.
https://www.homelight.com/blog/buyer-how-much-does-it-cost-to-build-a-houseLinks to an external site.
GarageHow many square feet in a 2-car garage? About 400. https://findanyanswer.com/what-is-the-square-footage-of-a-two-and-a-half-car-garageLinks to an external site.
Part 2. Supporting Narrative (5 Paragraphs)
Write 5 paragraphs as shown below, discussing how your 1004 form relates to the concepts we have learned in this course regarding the 3 classic approaches to value.
TEMPLATE:



Appraisal Methods<1 paragraph summarizing this section. Include the subject property address. It must reference your appraisal report you will include as Appendix A. Paragraph must be 5 sentences. Cite the textbook once per paragraph. You may re-use parts of your Ch. 3 Reflection Summary for this section.>
Market / Sales Comparison Approach< 2 paragraphs explaining the various factors in this approach, as it specifically relates to the subject property. The steps involved in the market comparison method must be described. Each paragraph must be 5 sentences. From Chapter 9, cite the textbook once per paragraph. You may re-use parts of your Ch. 9 Reflection Summary for this section.>
Income Approach (Capitalization Method)< 1 paragraph calculating the GRM (shown above) and applying it to the subject property. The steps involved in the income method must be described. All sources must be cited and referenced in APA format. Each paragraph must be 5 sentences. From Chapter 10, cite the textbook once per paragraph. You may re-use parts of your Ch. 10 Reflection Summary for this section.>
Cost Approach< 1 paragraph describing the cost approach as applied to the subject property. The steps involved in the cost method must be described. The method of calculating building cost must be shown with verified sources, cited and referenced in APA format. Each paragraph must be 5 sentences. From Chapter 8, cite the textbook once per paragraph. You may re-use parts of your Ch. 8 Reflection Summary for this section.>
EXAMPLES OF 1004 FORM
Cost Approach – PAGE 3
Income Approach – PAGE 3
Reconciliation (partially completed) – PAGE 2
EXAMPLE: SUPPORTING PARAGRAPHS
Following is a model of the narrative assignment to be submitted (7 paragraphs). Do not copy the text below, but you can use it as a template. Do NOT use red font or yellow highlighting in your assignment. This is shown as an example only. DO NOT COPY THIS EXAMPLE.
Ima Student
January 1, 2020
BRE-120 Real Estate Appraisal
Appraisal MethodsIn this appraisal report, the subject property value at 123 S. River Road in Ventura, California, was calculated using the three classic approaches to value: the sales comparison approach, the income approach, and the cost approach. Refer to the appraisal report attached as Appendix A. The sales comparison approach value was computed at $333,000 based upon the comparison of three similar property sales and the adjustments to each comp. The cost approach value was computed at $339,600 based upon the site value and the local cost of building materials. Lastly, the income approach value was computed at $334,800 based upon the local market rental rates and the local gross rent multiplier (GRM).
Market / Sales Comparison ApproachIn computing the sales comparison approach value of $333,000, three comparable sales were located. The three properties were similar in size, age, architectural type, site, view, improvements, and number of bedrooms/bathrooms. “For a sale to be considered comparable, it must compete with the subject property… in the same market as the subject property and appeal to the same sorts of buyers,” (Huber, 2018, p. 283). The first comp, on page 2 of the URAR 1004 form, was 456 S. River Road, was 1,200 square feet and recently sold for $300,000, making the price per square foot $250. It is similar to the comp in all aspects, except for the room count (one fewer bathroom) and the square footage (200 square feet less than the comp). In the Comp #1 adjustment column, $5,000 was added to adjust the comp’s inferiority, and due to the fewer number of bathrooms $30,000 was added to adjust the comp’s inferiority. All adjustments were made TO the COMP as follows: if the comp is superior, subtract from the comp; if the comp is inferior, add to the comp. Using this method, the comp is adjusted to be similar to the subject property.
The second comp located at 789 S. River Road, recently sold for $325,000. It was a 3 bedroom, 2 bath residence with the same square footage as the subject property. All features were similar to the subject property, except for the condition. Comp #2 had not been updated since it was built 32 years ago — it still had the original interior (carpeting, vinyl flooring, counters, cabinets, HVAC, etc.) and therefore the condition was reported as “fair”. The subject property was “average”, and since Comp #2 was inferior in condition, an adjustment of $10,000 was added to Comp #2. Lastly, Comp #3 was located at 369 N. Pacific Ave. and sold for $350,000 within the last 60 days. This comp had 4 bedrooms and was larger (1,600 sq. ft.), making it superior to the subject property; therefore, $7,500 and $21,500 were subtracted from Comp #3. All data was verified through the local MLS. “The appraiser must verify the data that will be used” and ensure it was an arms-length transaction (Huber, 2018, p. 285).
Income Approach (Capitalization Method)The subject property was analyzed using the gross rent multiplier (GRM) method to determine the income approach to value. It is sometimes referred to as the gross income multiplier (GIM), or simply the “multiplier”. As Huber states, “multipliers are most often used to convert gross income to value,” (2018, p. 331). The concept typically involves finding the annual gross rents (or income) received for the property and multiplying it times the GRM (or GIM) that is most common for the local area market. However, for the 1004 appraisal form, the “Income Approach” section requests the gross monthly rent, not annual rent. Therefore, the local area GRM of 15.08 was multiplied by 12 to represent a monthly multiplier. The monthly market rent was researched on www.Rentometer.comLinks to an external site. and verified with local comps within a .5 mile radius from the subject property. The rent of $1,850 was multiplied by the GRM of 181 to arrive at the value of $334,850.
Cost ApproachFinally, the cost approach (using the replacement method) was applied to the subject property. “The replacement cost… is the cost to build a new substitute improvement at current prices with modern materials, and according to current standards,” (Huber, 2018, p. 285). The first step was to determine the site (land) value, which was $115,000. This value was determined by using the MLS to analyze vacant lots in close proximity to the subject property. Next, the cost to build the improvements was researched. The cost to build a residential house in the local area was $139 per square foot, and to build a garage was $75 per square foot, according to local building sites. The building’s 1,400 square feet were multiplied by $139, making the cost of the house $194,600. The 2-car garage, estimated at 400 square feet, was multiplied by $75 to make the garage calculation $30,000. Typically, the next step involves a deduction applied for depreciation; however, in this case, depreciation was already factored into the building cost per square foot. The site, house, and garage values were added together to arrive at the total value of $339,600 using the cost approach.