Transform sales processes with the sales evaluation program in Affidavits

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hey everyone my name is paul vachesky and welcome to the real estate classroom youtube channel hey real quick do me a favor give this video a thumbs up hit that red subscribe button click on the notification bell comments questions down below would appreciate it okay so in today's video we're going to discuss the sales comparison approach to value or sometimes called the market data approach it's the first type of appraisal that we are going to discuss i'm going to do two more the cost approach to value in the income approach to value but this one is the sales comparison approach let's get to it [Music] so in this video we're going to discuss a type of appraisal called the sales comparison approach or sometimes called the market data approach i briefly in my previous video we discussed the three types or the the three approaches to value we just gave the 50 000 foot view now i'm going to do a video on each one of these types of appraisals and we're going to dive deep into each one and so you understand how the mechanics and the processes of each one work but today we're going to focus on the sales comparison approach or sometimes called the market data approach and remember that uh this is this type of approach to value is used for um we have the subject property that we're trying to determine the value on we don't know what the value is and we're going to use comparables similar properties that have sold in the last uh oh let's say three to six months that are similar in utility that we're going to use to determine the value now just to refresh your memory here we typically use these types of appraisals for residential type property and vacant land with no improvements on them again we compare our subject property that's the property that's getting the appraisal that's the property we're trying to determine what the value is and we use comparables so we're determining the value by comparison is essentially what we're doing now understand homes that are currently for sale or even those that are under contract typically the appraiser will not use as part of the the value processing all right number three or the next one is we use a minimum of three comparables to determine the value and then understand the appraiser is going to search the immediate area where the subject property is located to find those comparables and then we extend the search area as we need more and more comparables all right and then the last two things on your screen here just remember adjustments are made to the comparable properties to adjust for the differences between the properties and you add to the lesser property and subtract from the better property we're going to talk you're going to i'm going to illustrate that in the next couple of slides so let's get to that all right so let's take a look at how the process evaluation actually works now over here in your left hand column these are what we call the categories of adjustments all right so we have things like the number of bedrooms the number of garages features or amenities location now as i said in my previous video there is probably a dozen 15 maybe 16 different categories that we're going to make adjustments for because not every property has every feature so as you can see along the top here we have our subject property which is 1 2 3 main street our first comparable is 610 main street and it sold excuse me the actual sale price was 240 000 we have comparable number two and that's at 10 bend street and it sold for 260 000 and then we have comparable number three 1415 y street and it sold for 275 000 now understand these are actual sale prices these are three comparables that have recently sold probably within the last six months and those were the actual sale prices and so what we're going to do is we run down these different amenities here and we start and we start determining what has which property has these features and which one doesn't we're going to make adjustments to these sale prices in the end at the bottom we're going to come up with our adjusted sale price now i i know there's going to be a question why doesn't the appraiser just simply take these three properties and add them together and divide by three and use the average well maybe an a lazy appraiser would do that but that's not the proper technique or process to do it so let's go through uh and start making adjustments so our subject property 123 main street it is a three-bedroom house now let's look at the comparables comparable number one has a three-bedroom is a three-bedroom house as well so there's going to be no adjustment for that because they're similar all right but let's look at comparable two and three both of those are four bedrooms four bedrooms do not look like our three bedroom so how do we make in monetary terms how do we make comparables 2 and 3 look like ours so we're going to have to deduct from that actual sale price so uh the the appraiser has determined that each bedroom or the value of each bedroom in that area is ten thousand dollars now i know i'm going to get this question where do they get that value from number one that's beyond the scope of what we're trying to do here you do not need to know that for your licensing exam but to answer the question is appraisers in each locality they have a a a list of valuations for each type of feature so if you live in dallas texas all the appraisers are going to know that a bedroom each bedroom is is valued or is worth x amount of dollars a pool is worth x amount of dollars which is going to be different than in bismarck north dakota so the appraisers have that that uh that data available to them in the area that wherever this property is located uh the appraiser have the appraisers have determined that each bedroom has a value of ten thousand dollars and remember because two and three have four bedrooms and ours only has three we got to adjust down we have to make the the comparables look like ours in monetary terms so ten thousand dollars is going to be deducted from the actual sale price now let's look at how many garage spaces each of these properties have our subject property has two bedrooms comparable number one has two bedrooms as well so there is no adjustments that's done but let's look at comp 2 and comp 3. both of those have three garage spaces so the appraisers in that area have determined that each garage space is worth 5 000 bucks so because comp 2 and 3 is bigger than ours we have to subtract and so we're going to subtract 5 000 from comp 2 and comp 3. all right so let's take a look at features and amenities so our subject property has a pool comparable number one does not and comparable two and three both have pools so in comparable two and three because no adjustment is needed there's zero dollar amount that we have to take into consideration but let's look at comparable number one comparable number one does not have a pool but ours does so how do we make comparable number one look like ours well the appraisers have determined that uh the pool is worth twenty five hundred dollars so the appraiser is going to add twenty five hundred dollars to that two hundred and forty thousand dollar sale price in the adjusted sale price column because it does not have a pool and we're trying to make it look like ours so they're gonna add twenty five hundred dollars now notice the twenty five hundred dollars here is going to be added eventually to that 240 000 sale price location so the lot that our property on is just average the lot that comparable number one is on is just average the lot that comparable number two is on is just average but look at comparable number three it's on an above average lot now what makes a lot average or above average or whatever well there could be a lot of reasons but let's just say for example in our scenario that comp number three their lot that they're on has a great view maybe a water view or a view of the river or the ocean or whatever the case may be and comparable one and two does not so there are no adjustments for comparable one and two in this category however because it's a better lot we're gonna adjust down remember we're trying to get the comparable to look like our subject property that's why we make the adjustments to the comparables the appraiser has determined that the the value is five thousand dollars so we're gonna deduct five thousand dollars off of this 275 000 sale price that comparable number three has now as you can see if this was a real appraisal the appraiser would continue down with all the categories but we're going to stop here i think i've illustrated it enough so you understand how the process works so one of the final things that's going to happen is we have all the adjustments made to comp number one we've made all the adjustments to comp number two and we've made all the adjustments to comparable number three now we're going to add them up and let's see what the is the adjusted sale price is for each comparable so we let's look at comparable number one it had an actual sale price three six months ago whatever it may be of 240 000. then we ended up having to add 2500 because it does not have a pool so we want to try to make comparable number one look like our property the subject property so the adjusted sale price for comparable number one is two thousand two hundred and forty two thousand five hundred dollars let's look at comparable number two it started out with a a a sales price an actual sales price of 260 000. we had to minus 10 000 for that extra bedroom remember i'm killing a dead horse here but i want you to understand this how do we make comparable number two which is a four bedroom look like our subject property which is a three bedroom the only way to do that is adjust the value so we're gonna deduct that ten thousand dollars we've a deducted five thousand for the extra uh garage space that gives this property comparable number two an adjusted sale price of two hundred and forty five thousand dollars now let's take comp number three which sold for two hundred and seventy five thousand dollars it has four bedrooms ours has three so we adjusted it down ten thousand dollars it has a three-car garage the the subject property only has a two-car garage so the appraiser adjusted it down five thousand dollars for that category and it's on an above average lot ours is just or the subject property is just average so the oppress the appraiser adjusted it down another five thousand dollars which gave us an adjusted sale price of 255 000 right so where do we go from here again do we just add those three together and divide it by three well no that's not the correct way to do it what the appraiser is going to do to determine the value because the next question is all right we've done our adjustments and our calculations what is the value what's the appraised value of our subject property that we're trying to determine the value on so what the appraiser should do is find out which comparable is most similar to ours typically that's done by which comparable has the least adjustments for the features and in our case i think comparable number one does it only has one adjustment and that is for the pool and that's it so um the appraiser in my opinion is going to probably determine the value or make a valuation for the subject property somewhere between 242 500 and 245 000. it's unlikely that if they're going to use comparable number three or at least value it up around the range of comparable number three because again we're trying to find out which comparable or which comparables are the most like our subject property and that's what appraisers do and remember it is an opinion of value it's a professional opinion of value and so i may come up with as an appraiser i may come up with a valuation or i may determine the valuation of the subject property is 242 500 another appraiser may say 245 another appraiser may 2 may say 243 but my guess is all the appraised values are going to be within that that price range that my friends is the sales comparison approach to value very important that maybe you watch this a couple more times so you understand how we came to the the uh the valuations and how we made the adjustments to the comparables it's key to remember we make the the changes to the comparables not the subject property so all right if you're going to continue studying check out this video which is going to be my next video which is the cost approach to value if you have not subscribed to the channel please do so click the little circle to my left and then comments and questions down below it's all i got for this video i will see you in our next video