Valuation of the Subject Property for Shane Simmons - Case Study Example

VALUATION REPORT Course Name Professor’s Name Institutional Affiliation City and State Where Institution is Located Date TABLE OF CONTENTS valuatio-------------------------------------------------------------------I Introduction and Purpose------------------------------------------------------------1 Legal Section ---------------------------------------------------------------------------2 Zoning/Assessment/Conditions of development---------------------------------3 Location -------------------------------------------------------------------------------- 3 Land/ Site Description---- -----------------------------------------------------------5 Comparable sales Method----------------------------------------6 Check valuation method (summation method) ---------------------------------------8 Valuation summary and conclusion -------------------------------------------------------9 References ----------------------------------10 Appendix (valuation grids) ----------------------------------10 Introduction and purpose This is a valuation report seeks to estimate the value of a private property so as to fulfil Shane Simmons’ request of 1st April 2016. The property legal description is “Lot 60 on SP1642699, Parish of Drayton and is located on 21 Salisbury street, Darling Heights, Toowoomba. Mr Simmons wishes to purchase the property entailing a piece of land and a house to be a private residence. Therefore, he seeks to know the market value of the house and the land. The comparable sales method is employed so as to enable the valuer to estimate the current market value of the residence. Legal section Inspection, purchase and report date – 1 April 2016 Client – Shane Simmons Property address – 21 Street Salisbury, Darling Heights, Toowoomba Real property legal description – Lot 60 on SP164269, Parish of Drayton Area - 708m2 Tenure – freehold Local authority- Toowoomba regional council (TRC) Statutory Valuation - the unimproved land valuation is $157,500 at 1/10/2015 Highest and best use – According to ( Australian Property Institute (API) 2014), the highest and best use is better referred to as the use of an asset that maximises its potential and that it is physically possible, legally permissible and financially feasible. Therefore, the highest and best use of the property would be a private residence to a large family. Factually, this is influenced by the fact that the house has four bedrooms with an attached well spaced entertainment and bay in the exterior thus giving the residence a family look. In addition to single family occupancy, the residence has favourable landscape and good open space for free personalisation for the family. Zoning and assessment Zoning shown by planning and development online for Toowoomba puts the property in a mixed housing thus typical for residential housing and high density accommodation. Typically, prior to the evaluation date, familiar land sales were booked to be on the west of baker street, Darling Heights in Grace View Estate, a 27 Lot residential subdivision with an average price sold per lot being $325 per sq.m in 2015/2016. In addition, notable sales were; 3 Harrison court ( Lot 7 SP173979) for 734m2 at $220,000 and 93 Platz St ( Lot 22 SP272772) for 526m2, $ 197,000. Location This private residence is located in the suburb of Darling Heights near the southern edge of the Toowoomba City boundary. Toowoomba city is 120km east of Brisbane, capital city of Queensland; it has a favourable climate with adequate rainfall throughout the year. The population of the town ranges at 163,000 people as at 2016 with a large portion being retirees. Due to the good climate, Toowoomba is the regional focus of the rich Darling Downs farming and grazing region.(ERP 2016) Access The property is accessible through the distributor/ collector streets with two lane bitumen carriageway with well maintained kerbing and channelling. Services and amenities The following services and utilities are available: Electricity Gas Town water Sewerage Telecommunications Refuse collection Public transport –bus The following amenities are available: Parks for recreational use. Schools (secondary and primary) University of southern Queensland Child care centres Hotels, shopping centres, fast food chains and petrol stations in the vicinity. Sporting ovals such as rugby union, rugby league, touch football, softball, soccer and baseball are played. Regional data The relevant information on the private residence is accessible through the Toowoomba regional council (TRC) online platform, the planning and development section _ PD online. On this platform data such as dimensions, zoning, applications, parcel conditions and mapping can be accessed. Realestate.com.au is a very resource online platform that offers necessary, sufficient and efficient knowledge on the property and adjacent properties. This websites facilitates the relay of data on the specifics of the residence while offering recommendation on its highest and best use. On this specific property it offers a moderate value to be $390,000 - $400000. On the other hand, comparable unit sales are accessible. They pinpoint that property 20 Salisbury Street, darling heights and just adjacent to the property on valuation was sold at $420,000 on august 2015. Land/ site description The property is situated along in the Salisbury Street in the suburbs of Darling Heights near the southern edge of the Toowoomba City boundary. Salisbury Street is a dual purpose street with two lane bitumen carriageway full with good condition kerbs and well maintained channelling. Basically, the residence is turfed at road level and has red soil. The property has a levelled lot thus does not require any earthworks. In addition, closer assessment by the valuer notes neither restrictions nor encumbrances. The neighbouring properties are already developed thus fencing has been done on two sides only. In this report, the value of the property is calculated and analysed through the comparable sales method. The results of the analysis are discussed and recommendations provided in the report. Improvements The property is well presented, however in order to achieve the term private residence, the house and entire property at large need some improvement. After several visits, the valuer notes that some improvements can be done on the paintwork and general exterior and interior finishes. Further, one can choose to improve on floor finishes by introducing new carpets. In addition, enhancements can be focussed on the conditioning so as to upgrade its living conditions. However, apart from appearance enhancements, the house needs no structural improvements as it is in structurally in a good condition. Minor upgrades should also be done on the landscape so as to improve the aesthetic look of the residence. Sales evidences / schedule of sales In Darling Heights several sales have been done in the period of 2015/2016. These sales include adjacent properties such as 20, 25 and 27 Salisbury Street. Each sale varies depending on the specifics of the property such as size, appearance and condition. Typically, 25 Salisbury Street which is 714m2 was sold in November 2015 for $454,000 while 20 Salisbury Street which is 714m2 too was sold at a price of $420,000 in august 2015. Further, opposite to the property lies adjacent property sold in the recent past. In March 2016, size 700m2, 27 Lavarack Street, was sold for $435,500 while in November 2015; size 700m2, 16 Lavarack street property was sold for $380,000. Valuation The market value is defined as the price which would be achieved in an ordinary transaction at the time when the assessment is made, taking into account the existing legal circumstances and the actual characteristics, the general condition and location of the property without consideration being given to any extraordinary or personal circumstances. Basically, this property qualifies to be a private residence. I estimate my valuations to be at $440,000 all inclusive. The value of the land is approximately $230,000 after using data from sales that show that the average price per sq.m is $325. The value of the house is at an estimated value of $200,000 based on sales done on the adjacent houses. Signature: Full analysis of sales Essentially, during valuation the market value of a property is directly related to the sales prices of comparable competitive properties. This introduces the comparable sales approach as an effective way of estimating the value of a property. However, the effectiveness of the approach is highly linked to the level of research on recent subject scale sale, listings and offers. This is due to the fact that competitive listing and offers may indicate or rather signal an upper-limit to the subject market value estimate. However, it is important to ensure that the comparable properties share the same highest and best use. They should concur in potential use, potential user, potential buyer and timing for use. This will improve the synchrony of prices despite variables such as appearance, size and time. Further, to most valuers the approach is convenient as it considers value as present worth of future benefits automatically reflected in each market price, considers values ‘as if’, and works best in the presence of highly similar sales data as it offers an avenue to effectively compare and analyse the sales. In this scenario, the private residence Simmons sees an estimate is adjacent to highly similar property. In Darling Heights along the Salisbury Street almost all developments serve the purpose of housing families thus it is easier to relate sales o property in order to come up with a valuation. The report bases its valuation rooted from the sales of highly similar property in between august 2015 – march 2016. This gives the valuer a complete look into the real estate market in the region for the last six months. This data is very reliable as all the sales share several factors such as the potential buyer, user and use. On this scenario, the subject real estate is 708m2. Its highest and best use is a single family dwelling, a medium size family home. This is influenced by the availability of various amenities such as the lawn, shed and entertainment area that would favour a family structure. Further, this is due to the fact that the neighbourhood favours the settlement of families making the highest and best use to be a family dwelling. In addition, the client requires the estimate value of the land plus the house. This value will determine if the client will purchase the property or not and if the property is fit to serve the needs of Shane Simmons. As noted above, in the previous six months, several sales have occurred in the locality. These sales relate to the subject property since all sales are of family oriented property, thus they share the same highest and best use. These sales include 20 Salisbury Street, 25 Salisbury Street, 27 Lavarack Street and 17 Lavarack Street. In these sales one focuses on the features and notices minimal differences in areas such as presentation, plumbing, maintenance and noticeably size. However, all these sales share the same market conditions, services such as electricity and amenities such as schools and a university. Further, the quality of the property already sold also differs per subject ranging from average to very well present. In each sale, the price gives the nature of the sale. In 20 Salisbury Street, the price of the 714m2 well presented properties was $420,000 in august 2015. As for 25 Salisbury Street, the price of the very well presented 714m2 property was $454,000 in November 2015. On the other hand , along the Lavarack street, the 700m2 average presented 17 Lavarack was sold for $380,000 in November 2015 while 27 Lavarack street with the same size yet well presented was sold in march 2016 for $434,500. We notice that the above sales have occurred in the last eight moths thus giving information with relevancy and consistency sufficient enough for the comparable sales method. The property’s also share a nil maintenance cost and no restrictions or encumbrances. Further, in order to relate the sale with the current valuation, let’s establish a unit of comparison that cuts across all the sales. This unit of comparison should relate to the price of the subject real property and also to the prices of the adjacent property. In this case, information provided show that in 2015-2016 the price of land in the area is $325 per sq.m in the locality. Thus for a full sale valuation, the price of land in the area is constant and only varies due to size. This gives the subjects land value to be at $230,100. Comparison of market observations to the subject The following adjustment grids provide comparable sales for four actual market sales adjacent to the subject property that have occurred in the last seven months. Table 1 compares sales from 20 Salisbury Street as comparable 1 and 25 Salisbury Street as comparable 2 respectively. Calculations using comparable sales method to establish the market value of subject property; 20 Salisbury St 25 Salisbury St Adjustment to transaction $420,000 $454,000 Time of sale august 2015 November 2015 Property rights $0.00 $0.00 Condition of sale $20,000 -8.4% $49,000 -10.7% Transaction adjusted price $400,000 -8.4% $405,000 -10.7% Area (sq.m) 714 714 Price per property area $560.22 $567.22 More illustrations are on the adjustment grid 2 in the appendix. 16 Lavarack St 27 Lavarack St Adjustment to transaction $380,000 $435,000 Time of sale November 2015 march 2016 Property rights $0.00 $0.00 Condition of sale $15,000 -3.9% $35,000 -8.00% Transaction adjusted price $365,000 -3.9% $400,000 -8.00% Area (sq.m) 700 700 Price per property area $521.43 $571.43 More illustration is shown on the adjustment grid 1 in the appendix. Adjustment to subject property (PER Sq.m) Coefficients Estimates Adjusted transaction to per sq.m $571.43 Time (elapsed time) in months 1X 10= $10 $ 10 Size 2.28 $ 25.28 Condition of sale 40 $ 15 Total $623.43 Estimate value of subject real property as of 1st April 2016 will be 623.43x 708= $441,388.44 Reconciliation puts the market value of the property at $442,000 More data is shown on table 1 in the appendix In this valuation, data relied o is majorly obtained from the adjacent property’s already sold. In 20 Salisbury Street, the total price was $420,000 in august 2015; this was influenced majorly by the size of the property. 20 Salisbury Street is much alike to 21 Salisbury as they share all the services and amenities, structurally they are similar and in presentation they are similar too. However, variations are only in size of the entire property with a deficit of 8m2 and difference in size of living room by 5m2. Further, deviation also occurs due to the time of sale and need for adjustments. Therefore, in order to cater for the size, condition of sale and time elapsed between august 2015 and April 2016, adjustments are done as shown in table 1 above. This adjustments and additions are what account to the estimated value of $442,000 for the subject property. Check valuation method Analysis of purchase prices prove that especially the assessed value of the summation method of real estate with private house building and the on the property market realised purchase price can be different. By the adjustment factor to current market value, which is derived from the analysis of purchase prices, follows the adjustment of the summation value to the general state of the property market. (Mürle W. 1997) Implementing the summation method which uses the adjustment factor to market value in combination with results from the comparable sales method, one deducts the depreciation from building defects and damages to get a market value. In the subject property, the total area is 708m2 inclusive of the house and land. Therefore, using adjacent land rates we seek to find the value of the land and the house separately and thus make adjustments so as to establish a market value of the property. Thus in this case, a substitution can be done for the known parts of the value of the property in order to find the unknown parts of the market value. Factually, from data collected we establish that the recent sales of land to the west of Baker street such as 3 Harrison court (Lot 7) 734m2 was $220,000 and at 93 Platz St lot 22 for 562 m2 was $197,000, this pits the average price per sq.m to be $325. Using this statistics find the total value of land alone to be $230,100. The following calculations show the breakdown of the market value through summation method; SUMMATION METHOD Estimated market value of the subject property $442,000 Land value per sq.m $325 Total sq.m 708 Land value of the subject property $230,100 Total cost of buildings Plus external facilities such as garage Special operating facilities such as entertainment area Improvements such as concrete carriageway $ 211,900 Estimated cost of house $200,000 Estimated cost of improvements, Plus physical structures and building obsolescence $4,900 Deductions due to building defects and damages $ 7,000 Valuation summary and conclusion In the valuation of the subject property for Shane Simmons, emphasis is placed on using the comparable sales method. This is majorly influenced by the fact that adjacent sales in the recent share similarity to this property. These similarities include services such as town water, amenities such as a nearby university and locality in that they are on the same street. This enables the valuer to develop this comprehensive report that estimates the value of the property at $430,000. This is an estimated market value originating from calculations on the various variables in play. In addition, the market value is broken down using the summation method by which using the known land value, the valuer calculates the house value plus the cost of other deductions and improvements so as to show the value of all particulars in the subject property. References Australian Property Institute 2015, ‘IVS Online’, retrieved on 4th October 2016 http://www.api.org.au/menuitem/professional-and-technical-standards/ivs-online Brisbane Times 2016, ‘Stamp duty calculator’, retrieved on 4th October 2016 http://www.brisbanetimes.com.au/money/tools-and-guides/calculators/stamp-duty Home Design Directory 2016, ‘Construction cost calculator’, Viewed 4th October 2016 http://www.homedesigndirectory.com.au/calculators/construction-cost-estimator.php Office of Fair Trading Queensland 2016, ‘fees and charges’, retrieved on 4th October 2016, http://www.fairtrading.qld.gov.au/regulated-sectors/property/managing-your-property/fees- Mürle, M., Böser, W., 1997, Comparable method of valuation for real estate – represented for plots with terrace houses in the city Karlsruhe, Zeitschrift für Vermessungswesen (ZfV), 9000, pages 235-243, Stuttgart, Deutscher Verein für Vermessungswesen e.V. Toowoomba Regional Council 2014, ‘PD online’, Viewed 4 October 2016, http://www.toowoombarc.qld.gov.au/payments-and-self-service/pd-online Profile.id 2016, ‘Toowoomba estimated resident population (ERP)’, Viewed 4th October 2016, http://profile.id.com.au/toowoomba/population-estimate https://www.realestate.com.au/sold/property-house-qld-darling+heights-121697658 Appendix Adjustment grid 1 compares sales from 16 Lavarack Street as comparable 1 and 27 Lavarack Street as comparable 2 respectively. Adjustment grid Subject property Comparable no. 1 Comparable No. 2 Address 16 Lavarack street 16 Lavarack street 27 Lavarack street City Toowoomba Toowoomba Toowoomba County Toowoomba Toowoomba Toowoomba State Toowoomba Toowoomba Toowoomba Sale date N/a November 2016 March 2016 Price N/a $380,000 $435,500 Size (m2) 708 700 700 Price of land per Sq.m $325 $325 $325 Time(elapsed days) 1st April 2016 1st November 2015 1st march 2016 Building age (years) 12.0 12.0 12.0 Presentation and other improvements Well Average well presented with plumbing facilities Elements of comparison adjustment %adjustment adjustment %adjustment Adjustment to transaction $380,000 $435,500 Property rights $0.00 0 $0.00 0 Condition of sale $15,000 -3.9% $35,000 -8.00% Transaction adjusted price $365,000 -3.9% $400,000 -8.00% Area (sq.m) 700 700 Price per property area $521.43 $571.43 Adjustment grid 2 compares sales from 20 Salisbury Street as comparable 1 and 25 Salisbury Street as comparable 2 respectively. Adjustment/ valuation grid Subject property Comparable no. 1 Comparable No. 2 Address 25 Salisbury street 20 Salisbury street 25 Salisbury street City Toowoomba Toowoomba Toowoomba County Toowoomba Toowoomba Toowoomba State Toowoomba Toowoomba Toowoomba Sale date N/a August 2015 November 2015 Price N/a $420,000 $454,000 Size (m2) 708 714 714 Price of land per Sq.m $325 $325 $325 Time(elapsed days) 1st April 2016 August 2015 November 2015 Building age (years) 12.0 12.0 12.0 Presentation and other improvements Well Well Very well presented with plumbing facilities Elements of comparison adjustment %adjustment adjustment %adjustment Adjustment to transaction $420,000 $454,000 Property rights $0.00 0 $0.00 0 Condition of sale $20,000 -8.4% $49,000 -10.7% Transaction adjusted price $400,000 -8.4% $405,000 -10.7% Area (sq.m) 714 714 Price per property area $560.22 $567.22 Table 1 SUMMATION METHOD Estimated market value of the subject property $442,000 Land value per sq.m $325 Land value of the subject property $230,100 Total cost of buildings, external facilities such as garage and special operating facilities such as entertainment area plus improvements such as concrete carriageway $ 211,900 Estimated cost of house $200,000 Estimated cost of improvements, other physical structures and building obsolescence $4,900 Deductions due to building defects and damages since the house is in a good condition $ 7,000 Read More