In my real estate class at First Real Estate School in Hendersonville, I use the acronym CBS_CIA to remind students that if the Comparable is Better, Subtract from the comparable. If the Comparable is Inferior, Add to the comparable.
What they do not explain well enough in this textbook is how does Ms. Appraiser know to adjust a fireplace $2000 and a swimming pool $10,000. If you want to know how, here is the answer. It is called "matched pair analysis"
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| Ron Climer at First Real Estate School in Hendersonville |
If you are one of those people that almost passed North Carolina real estate exam the first time, understand this article before you go pay $64 to take the North Carolina real estate exam again.
Ms. Appraiser is appraising a house in XYZ Estates. This house is called the subject property. She does some market research and determines that there are four houses that have sold recently in XYZ Estates.
Number one sold last month for $200,000. It is a four bedroom , two and a half bath, 2000 square feet with a fireplace.
Number two sold three weeks ago for $198,000. It is a four bedroom, two and a half bath, 2000 square feet with no fireplace.
Number three sold two months ago for $209,000. It is a 4 bedroom, two and a half bath, 2100 square feet and a fireplace.
Number four sold six weeks ago for $199,950 . It is a four bedroom, two and a half bath, 2000 square feet with a fireplace.
Our subject property is a four bedroom, two and a half bath, 2000 square feet with a fireplace.
Ms. Appraiser would certainly be delighted if all of the comparable properties had the same features as the subject. That is if all the comparable houses were four bedroom, two and a half bath, 2000 square feet with a fireplace.
It does not happen that way. Ms. Appraiser has to use a process called adjustment to determine what the comparable house would have sold for "if" it were a four bedroom, two and a half bath, 2000 square feet with a fireplace.
If the subject property has a fireplace and the comparable house does not, the appraiser would add the value of a fireplace to the comparable house. If the appraiser added the value of a fireplace to the actual selling price of the comparable house #2, that would make it the same as the subject property. IF COMP #2 HAD A FIREPLACE , IT WOULD HAVE SOLD FOR $198,000 PLUS THE VALUE OF A FIREPLACE. Is that a fact? No, it is Ms. Appraiser's expert opinion.
The question is, "How does Ms. Appraiser know the value of a fireplace?". In real life the answer to this question is Ms. Appraiser knows the value of a fireplace because she is an expert appraiser that is extremely familiar with her marketplace. It is not real life. It is the test. How do we know on "the test" what a fireplace is worth. Maaaaaaybe, it will tell you in the question. Maybe it won't.
On the North Carolina real estate exam, students have to use a process called "matched pair analysis" to determine what a feature such as a pool or a fireplace is worth.
The way this works we take two sales that are identical EXCEPT for one feature. Sale #1 sold for $200,000. Sale #2 has the same features except it has no fireplace. Sale number two sold for $198,000. Ms. Appraiser ASSUMES that "if #2 had a fireplace, it would have sold for $200,000 because sale #1 sold for $200,000. Therefore, a fireplace is worth $2000.
Sale #1 and sale #3 are identical except for the square feet. Sale #3 sold for $9000 more dollars than sale #1. Number three has 100 more square feet. Therefore 100 square feet must be worth $9000 or $90 per square foot.
If you intend to make 100% o the North Carolina real estate exam, be sure that you understand this article.
If one of your friends in western North Carolina near Asheville or Hendersonville or Rutherfordton or Tryon or Saluda or Brevard or Weaverville or Cashiers or Forest City or Black Mountain is considering going to real estate school, please recommend First Real Estate School. Our tuition is $300. We are at 404 S. Main Street in Hendersonville. www.firstrealestateschool.com Our phone is 828 440 1064.
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