1. Data Collection, Market Areas and Neighborhoods
Basic Information Needed Before the Three Approaches
Wayne Foss, MBA, MAI, CRE
Foss Consulting Group

2. Types of Real Property Fee Simple Estate Definition: Application:
Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat.
Application:
Appraisal of properties which are owner occupied. The owner has all of the bundle of rights.
Can be any property type, but most often is a single family residence or condominium

3. Types of Real Property, con’t..
Leased Fee Estate
Definition:
An ownership interest held by a landlord with the rights of use and occupancy conveyed by lease to others. The rights of the lessor (the leased fee owner) and the leased fee are specified by contract terms contained within the lease.
Application:
Appraisal of properties which are tenant occupied. The owner has given up the right of occupancy in exchange for the payment of rent from a tenant.
Generally thought of as investment properties. i.e.: Apartments, Industrial Parks, Office Buildings and Shopping Centers

4. Types of Real Property, con’t
Leasehold Estate
Definition:
The interest held by the lessee (the tenant or renter) through a lease conveying the rights of use and occupancy for a stated term under certain conditions.
Application:
Created when the contract rent is less that the prevailing market rent. A leasehold estate has a finite life, the length of the lease contract.
Generally found in investment properties. i.e.: Apartments, Industrial Parks, Office Buildings and Shopping Centers when long term leases are involved.

5. Information Needed before applying the three approaches
These items are needed to know
what you are appraising (physically & legally)
what problems are involved, and to
estimate highest and best use
Market Area Analysis
Neighborhood,
Identification of the submarket
Site Analysis
Improvement Analysis

6. Data Collection Three Broad Categories General Data Specific Data
Includes information on the four forces that affect property value
Specific Data
Details about the property being appraised
Competitive Supply and Demand Data
Inventory of competitive supply
Analysis of prospective demand

7. General Data Economic Trends Local Market Considerations International
Regional
Local
Local Market Considerations
Macroeconomic and microeconomic studies
Macroeconomic studies are broad (cities and regions)
Microeconomic studies are narrow and evaluate the factors that influence the market for a particular parcel of real estate
Demographics
Study of the changing population
Government regulations and social attitudes
Land Use regulations (i.e. zoning, transportation systems)

8. General Data, con’t... Local Market Considerations, con’t..
Purchasing power
disposable income (the income that remains after deducting income taxes and all other payments to federal, state and local governments)
Price levels
rates of change (trends) in overall prices, rents, expenses
Building fluctuations
rates of change in the issuance of building permits
Building costs
rates of change in the prices of construction. Items such as labor rates, changes in construction technology, and public regulations
Taxes
trends in assessed value and real estate taxes
Financing
Cost, availability and terms of construction and take-out financing

9. General Data, con’t... Sources of General Data Government
U.S. Dept of Commerce, Bureau of the Census
U.S. Dept. of Labor, Bureau of Labor Statistics
State and Local planning agencies
Local University and College Research centers
Trade Associations
Appraisal Institute
Urban Land Institute (ULI)
Building Owners and Managers Association (BOMA)
Private Sources
Multiple Listing Services
Computer databases
Personal Appraisal Files

10. Specific Data The subject property Comparable Sales Comparable Rentals
Description of the Land
Description of the Improvements
Zoning
Potential legal uses allowed on the land
Comparable Sales
Comparable Rentals
Improvement Cost Data
Income and Expense Data
Capitalization Rate Data
Specific Data are used to:
Determine the highest and best use of the property
Set the stage for the application of the three approaches to value

11. Specific Data, con’t... Investigation of Market Transactions
the degree of comparability with the subject property
the quantity of information available
the reliability of the data
Sources of Specific Data
Public records
examples are recorded deeds, assessors records, zoning ordinances
Published news
trade publications, local business journals
People in the industry
brokers, bankers, property managers, developers, appraisers
Multiple listing records
sources of information on specific property transactions and details

12. Supply and Demand Data Supply Data Demand Data Sources of the Data
inventory includes all properties like the subject property that is for rent, rented, sold, on the market, and properties that will likely to be developed.
Demand Data
analyze the prospective demand for property like the subject
analysis of population trends
residential and retail properties
analysis of employment trends
office and industrial properties
Sources of the Data
Interviews
Public Records
Building permits, development plans
Demographic data

13. Neighborhood - Market Area
Why Analyze The Market Area?
To identify the submarket in which the subject competes for buyers and tenants.
The property appraised is “fixed” in its location and subject to location influences (External forces)
To help identify which sales are “comparable”
To help forecast conditional sales price of subject; an appraisal is a conditional forecast,
To help establish the submarket
Helps to determine the stability of an area. May also indicate future land uses and value trends.

14. The Market A “Submarket” may be described in terms of:
Potential users
Potential buyers
Price or rental amount range
Product type
Geographic Area
Market Area defined:
The defined geographic area in which the subject property competes for the attention of market participants; the term broadly defines an area containing diverse land uses.

15. Neighborhood aka Market Area
Definition:
A group of complementary land uses; a related grouping of inhabitants, buildings, or business enterprises.
Concepts
An area of similar or compatible land uses (zoning)
An area of similar building types, ages or styles
An area within which any change has an immediate direct influence on the value of the appraised property.
The area within which the subject competes with other properties.
Population characteristics, in habitants of similar age or economic profile
These concepts apply to any property type

16. Neighborhood aka Market Area
Definition:
District: A type of neighborhood characterized by homogeneous land use.
Distinctions between Neighborhoods and Districts
A neighborhood may contain several uses that complement one another.
Example: a neighborhood may contains single family homes and commercial properties that provide services to local residents.
A district contains one predominant land use
An apartment or industrial district, or office park

17. Neighborhood Boundaries
The area in which the forces that influence value operate on all surrounding properties in the same way that the forces operate on the property being appraised.
Boundaries may be:
Physical
Natural - rivers, lakes, mountains, ocean
Man-Made - streets, highways, different uses, railroads
Political - city, county, district
Use
Change from Single family to multifamily residential use.
Change from residential to commercial, industrial or agricultural use.

18. Identification of Neighborhood Boundaries
Examine the physical characteristics of the area
Look for type of structures, land use, topography, access, etc.
Draw preliminary boundaries on a map.
Test the preliminary boundaries against demographic data
obtains information about the people living within the area
Ask people who know the area
Such as residents, brokers, businesspeople, other appraisers
The people who live and work in the neighborhood have the best understanding of the market area.

19. Neighborhoods and Districts
Are constantly changing (principle of change)
Questions to ask regarding the changes
Are there new Uses?
Are there changes in density?
Is there an increase in commercial influence in a residential neighborhood?
Are many properties on the market?
Relationship between owner and tenant occupancy.
Rapid changes in one neighborhood may impact another.

20. Neighborhood Life Cycles
Four Stages
Growth
A stage in a neighborhood’s life cycle in which the neighborhood gains public favor and acceptance
Stability
experience equilibrium without gains or losses
Decline
diminishing demand
Revitalization
renewal, modernization, increasing demand

21. Neighborhoods and Districts
Four Broad Categories for Analysis
Physical (Environmental)
Consideration of any natural or man-made features
Location within the community
Linkages
Transportation systems
Proximity to employment, shopping schools, recreation
Topography, soil, climate, view
Land use patterns
Age, type, condition and appearance of structures
Adequacy, cost and quality of services

22. Neighborhoods and Districts
Legal-governmental
Taxation and special assessments
Public and Private Restrictions
Schools
Police and Fire Protection
Planning and Development Activities
Economic - financial
Profile of the Residents
Type of financing (and terms) available
Price and Rent Levels
Construction, conversion, and vacant land
Extent of Owner Occupancy
Vacancy Rates
Changes in use or economic base

23. Neighborhoods and Districts
Social - market
Relates to the status, physical environment, services affordability and conveniences of a location
Population Density
Age and Income Levels of occupants
Crime Rate

24. Districts Apartment districts Commercial districts
generally subject to the same influences as single-family residences
emphasis on parking and vacancy rates
Commercial districts
1. Central Business District (CBD)
Definition: The core, or downtown area, of a city where the major retail, financial, governmental, professional, recreational, and service activities of the community are concentrated.
Transportation in most communities oriented to CBD
Many of the CBD’s are undergoing changes
Revitalization
Changes in Land Use; from commercial to office or entertainment
Decline; lose business to suburbs

25. Districts 2. Regional Shopping center 3. Community Shopping center
Definition: A shopping center that offers a variety of general merchandise, apparel, furniture, home furnishings, services, and recreational facilities and is built around one or more full (anchor) department stores of at least 100,000 square feet each.
Analyze Trade Area and Competition (both existing and proposed)
3. Community Shopping center
Definition: A shopping center of 100,000 to 300,000 square feet that usually contains one junior department store, a variety store or discount department store, a supermarket, and specialty stores.
Trade area generally 10 to 20 minutes driving time
4. Neighborhood Shopping Center
Definition: The smallest type of shopping center, generally with a gross leaseable area of less than 100,000 square feet. Anchors are generally a supermarket and drug store, and possibly a bank
Trade area generally 5 to 10 minutes driving time

26. Districts Office Districts Industrial Districts
Include planned office parks and strip developments on major arteries
Sensitive to access and support services (restaurants, hotels and convention facilities
Industrial Districts
Many forms
large old complexes with heavy industry
modern new complexes with light manufacturing or distribution warehousing
Availability of Labor
Availability of Raw material
Distribution facilities
Linkages such as highway system, rail, water, air

27. Districts Agricultural Districts Specialty Districts
Soil type, land use, crops grown and water supply
Specialty Districts
Medical
hospitals, health care facilities, medical buildings
Research and Development Parks
Universities, departments of large companies
High Technology Parks
electronics and computer firms
Education Districts
Colleges, Universities, or community colleges
supporting housing and services
Historic Districts

28. Neighborhood aka Market Area example items to know
Example items to consider, understand, and know about a neighborhood:
Age Income Levels
Rents typical equity
cleanliness reputation
property condition, repair status
typical time on the market to sell (or lease) the property

29. Neighborhood aka Market Area example items to know, con’t
Prices, rents
Vacancy
Turnover
Parks
Schools
Government services
police, fire, trash, etc.
Occupant attitudes
Proximity to employment, recreation, shopping
Views
Design, layout
Zoning, use restrictions
Common areas
Homeowners association cost and benefits
Crime
Relative direction of growth

30. So That’s Data Collection, Market Areas and Neighborhoods
Are there any Questions?
Wayne Foss, MBA, MAI, CRE, Fullerton, CA USA
Phone: (714) Fax: (714)