1. Real Estate Investments David M. Harrison, Ph.D. Texas Tech University  Sales Comparison Approach  Cost Approach  Income Capitalization Approach Methods of RE Valuation

2. Real Estate Investments David M. Harrison, Ph.D. Texas Tech University Sales Comparison Approach  Identify Comparable Properties  Calculate Final Adjusted Price for Comparables  Reconcile prices of Comparables

3. Real Estate Investments David M. Harrison, Ph.D. Texas Tech University Sales Comparison Approach  Subject Property: 3 BR, 2BA, 2200 ft., 0.5 acre lot, mtn. views, 1 car garage, A-L transaction, Williston  Choice of Comparables: 5 BR, 3BA, 3000 ft., 1.0 acre lot, 2 car garage, A-L transaction, Williston 3 BR, 1BA, 2300 ft., 0.35 acre lot, lake view, 1 car garage, A-L transaction, Burlington 4BR, 2BA, 2400 ft., 0.40 acre lot, mtn. View, 1 car garage, A-L transaction, Essex 3 BR, 2BA, 2200 ft., 0.5 acre lot, mtn. Views, 1 car garage, non A- L transaction, Williston 3 BR, 2BA, 2500 ft., 0.5 acre lot, no views, 2 car garage, A-L Transaction, Williston

4. Real Estate Investments David M. Harrison, Ph.D. Texas Tech University Types of Adjustments  Transactional Characteristics  Ex. Sequential Analysis of Market Transactions PropertyPrevious DatePrevious PriceCurrent Price A9 months ago$168,000$175,000 B15 months ago$172,000$182,000 C24 months ago$161,000$179,000

5. Real Estate Investments David M. Harrison, Ph.D. Texas Tech University Types of Adjustments  Property Characteristics  Ex. Paired Sale Analysis of Market Transactions PairPropertyMountain ViewTransaction Price 1AYES$262,000 BNO$245,000 2AYES$325,000 BNO$305,000 3AYES$504,000 BNO$469,000

6. Real Estate Investments David M. Harrison, Ph.D. Texas Tech University Types of Adjustments  Property Characteristics  Ex. Paired Sale Analysis of Market Transactions PairPropertySwimming PoolTransaction Price 1AYES$197,000 BNO$185,000 2AYES$258,000 BNO$245,000 3AYES$381,000 BNO$369,000

7. Real Estate Investments David M. Harrison, Ph.D. Texas Tech University Sequence of Adjustments  Transaction Price  Normal Sale Price  Market-Adjusted Normal Sale Price

8. Real Estate Investments David M. Harrison, Ph.D. Texas Tech University Reconciliation ItemSubjectComp. #1Comp. #2Comp. #3 Price???$240,000$252,000$258,000 Arms LengthYes Financing TermsMarket $50/month BMMarket Normal Sale Price Mkt. ConditionsTodayLast Week Last Month Mkt. Adj. Normal SP Physical Char. Bedrooms/Baths4/2 4/1.54/3 Living Area (sq. ft.)2,5002,3002,4502,600 Mountain ViewsYesNoYes Garage2 Car 3 Car2 Car Legal CharacteristicsFee Simple UseOwner Occ.Owner Occupied Nonrealty ItemsNoneLawn TractorNone Final Adj. Sale Price???

9. Real Estate Investments David M. Harrison, Ph.D. Texas Tech University Reconciliation  Reconciliation Notes: Buyers and Sellers have equal bargaining power Prices increased 6% last quarter Full Baths cost $8,000 to construct, ½ baths $5,000 Living area is valued at $125 per sq. ft. Mountain Views add 8% to a parcel’s value Each additional stall in a garage is worth $5,000 The used lawn tractor is valued at $650  Reconciliation Value =

10. Real Estate Investments David M. Harrison, Ph.D. Texas Tech University Multiple Regression Models  Notes: Dependent Variable Intercept Beta Coefficients Independent Variables Residual R-squared Standard Error F-value T-tests

11. Real Estate Investments David M. Harrison, Ph.D. Texas Tech University Regression Example  Number of obs = 129  F( 6, 122) = 12.03  Prob > F = 0.0000  R-squared = 0.3717  Adj R-squared = 0.3408  Root MSE = 75524   ------------------------------------------------------------------------------  price | Coef. Std. Err. t P>|t| [95% Conf. Interval]  ---------+--------------------------------------------------------------------  bathroom | 71264.14 13089.99 5.444 0.000 45351.2 97177.08  bedrooms | 24474.38 11292.82 2.167 0.032 2119.112 46829.64  acreage | 2082.207 919.6718 2.264 0.025 261.6251 3902.789  view | 31468.52 24474.31 1.286 0.201 -16980.82 79917.85  c_county | -41.4894 19127.52 -0.002 0.998 -37906.32 37823.34  fsbo | 3671.687 13422.87 0.274 0.785 -22900.23 30243.61  _cons | 19191.05 35617.04 0.539 0.591 -51316.43 89698.53  ------------------------------------------------------------------------------ 

12. Real Estate Investments David M. Harrison, Ph.D. Texas Tech University Cost Approach  Reproduction Cost vs. Replacement Cost Equal Utility Functional Obsolescence Accrued Depreciation V 0 = (Reproduction Cost – Accrued Depreciation) + Site Value

13. Real Estate Investments David M. Harrison, Ph.D. Texas Tech University Accrued Depreciation  Physical Deterioration  Functional Obsolescence  External Obsolescence

14. Real Estate Investments David M. Harrison, Ph.D. Texas Tech University Gross Rent Multiplier  Methodology: Comparable #1Comparable #2Subject Price$1.95 million$4.10 million??? Units183226 Rent$850$1,000??? Sq. Ft.810905865 Price/SF???